Glacier FarmMedia – As the global oil market continued to ready itself for 2024, one analyst stated it’s more likely prices will increase than to drop further. Phil Flynn of the Price Futures Group in Chicago said one’s outlook on crude oil is predicated on their economic view.
“If you don’t think the economy is going to be in a substantial slowdown or recession, the prices are undervalued. If you do think we are going into a global slowdown, the prices have probably more room to fall,” Flynn explained.
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“I lean more towards the fact that the market is overdone. We’re going to bottom out shortly,” he added, noting that he expects world supplies to tighten in 2024.
Until then, Flynn said the oil market was suffering from “high anxiety” due to the amount of volatility. One case in point was Saudi Arabia cutting its price for oil on Jan. 8, which saw values for Brent and West Texas Intermediate crude oils get hit hard.
In the same breath, he pointed to the risk to supplies that’s added some cost to oil. Namely the attacks on commercial shipping in the Red Sea being carried out by Iran-supported Houthi rebels in Yemen.
“But the reality is we haven’t seen any major oil disruptions. We haven’t lost too many barrels of oil because of this. Admittedly, [shipments] have been delayed around the Red Sea has added to the cost.
Flynn said there were widespread expectations the price of oil would have jumped with the start of the Gaza war and fears the conflict would spread throughout the Middle East. But such has not occurred so far.
He also pointed to the annual “rebalancing of the commodity index funds” with Bloomberg commodity index and the S&P Goldman Sachs index.
“When they rebalanced those indexes, they had to sell some oil. That put further downward pressure on prices,” Flynn said.
He said the hedge funds built a near-record short position in crude oil, which weighed on values.
“They’re betting on a recession. They keep selling in every rally in oil. They are doom and gloom, and they keep pushing the market lower,” Flynn commented.
“On the flip side of that, if they’re wrong, you can see a major reversal in price,” he added, noting colder temperatures will push up the demand for diesel and natural gas.
— Glen Hallick reports for MarketsFarm from Winnipeg.
