For the archives.
Oil: Link here. Charles Kennedy.
From the linked article:
Oil and gas executives told the Dallas Fed that recession remains a key concern ....
“It’s tough to tell where these crosscurrents are headed. On one hand, we don’t know if anyone has noticed, but the two-year to 10-year Treasury yield curve is inverted, implying recession, and China is on lockdown basically every other day, so that means lower prices in the near term (probably),” one executive commented.
However, the same executive noted, while long-term demand is strong and OPEC continues to underperform, “shale core exhaustion” and inventory concerns remain key issues.
“Shale will likely tip over in five years, and U.S. production will be down 20 to 30 percent quickly. When it does—this feels like watching the steam roller scene in Austin Powers. Oil prices in the late 2020s will be something to behold,” the executive concluded.
When asked about expectations of a significant tightening of the oil market by 2024, one executive noted that the market is already tight, suggesting spot market prices are not based on true fundamentals.
“I struggle to understand why spot oil prices are as low as they are today and why there is still backwardation in the forward curve. It appears to me that the world is very short on supply, with big draws in Organization for Economic Cooperation and Development inventories still taking place even after a significant increase (and now leveling off) in North American drilling and completion activity,” the executive commented, adding that OPEC has “for the first time ever” acknowledged that there is no spare capacity.
Additionally, once China reverses its zero-COVID policy, demand will be driven up, while more Russian oil will be moved off the market pushing demand further.
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