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WTI crude oil fell as low as $112.31 today but turned around late in the day to finish up $2.27 to $117.58.
We’ve seen this story before. The oil market has been walloped by headlines about China lockdowns, SPR releases, OPEC+ surprises and a looming recession and yet prices hold up. That continues to point to global supply shortages and there’s every reason to believe they will get worse.
Goldman Sachs commodity analyst Jeff Currie did the simple math in a TV appearance today estimating that later this year:
- 1.5 million barrels of Russian oil offline
- SPR stops adding 1 mbpd in October, as planned
- China demand rebound by 800kbpd
- Seasonal uptick of 3-4 million barrels
Balanced potentially by:
- 2 million bpd from Saudis and UAE (max surge capacity)
- 300 kbpd elsewhere
That leaves a material deficit any way you count it. Given what’s happening in LNG prices, you can add more gas-to-oil switching into the equation as well.
What’s interesting is that oil companies are some of the worst performers on US exchanges right now. Some of that points to recession fears and a future demand slowdown but it’s also about the potential for a windfall tax. Ultimately though, taxing oil companies is just going to make for a large supply shortfall down the road.