Crude Oil Hits 11-Month Low Monday Before Reversing Yet Diesel Sees No Relief: What's the Outlook for 2023?
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West Texas intermediate crude oil prices hit an 11-month low of $73.60 per barrel Monday before rebounding to close higher. So, what is driving the market and how long will these lower price levels last?
Market analysts say a combination of factors have pulled crude oil off highs hit early this year including global demand concerns tied to recessionary fears and record COVID cases and lockdowns in China. Darin Newsome, Barchart Sr. Analyst says, "The COVID problems in China and the 100% zero tolerance is certainly weighing on crude oil. The thing is with crude oil if we look at its long-term monthly charts it's been in a downtrend since July. So, all we’re really doing now is seeing an extension of that. But what’s really been interesting is that we’ve got some commercial selling coming in. This tells us that this short-term supply and demand situation is loosening."
The market is also watching as OPEC and its allies are due to make a big call on oil production this week, as expanded sanctions are set to strike Russia’s energy industry. Crude oil futures reversed course Monday and rallied as news indicated OPEC might actually be looking at a production cut, refuting earlier reports of a possible increase. Newsome says, "I strongly doubt OPEC is going to make production increases. It just doesn’t seem to fit the narrative particularly with Russia still having such a strong vote in the OPEC plus."
The release of oil from the Strategic Petroleum Reserve has also eroded prices over the last few months, but Shawn Hackett, Hackett Financial Advisors says that may be coming to an end. "If we take that supply off and we are dealt with actually supply against actual demand even with the lower demand side aspect that are built in we still would warrant a substantial repricing of crude oil higher to better reflect that." He thinks prices could move higher in the first quarter especially if the administration replenishes the SPR. So, he recommends end users like farmers line up some of their energy needs.
Meanwhile, diesel prices have not eased, and Newsome is concerned the tight supply situation could be made even worse if there is a rail strike and the U.S. has to depend entirely on trucking for moving ag and other products.
