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“The macro outlook for oil is complicated going into 2023, characterized by a tug-of-war between forces of supply curtailment (EU embargoes/price caps on Russian oil and products + OPEC+ quota cuts) and forces of demand destruction (global recessionary headwinds clouded by China’s troubled COVID reopening policies).
The much-touted China COVID Re-opening as a short-term boon to oil demand is also not a given, especially since Chinese refining capacity appears to be tapped out already.
The Biden Administration has also indicated $70 as the level at which they will refill the SPR; I’ll believe it when I see it.
I believe that the first half of 2023 represents the most risk for oil prices, as unemployment may finally tick higher as companies battle recessionary headwinds.
As I have indicated in my past updates, I have been cautious on oil prices since the spike in Q2’22 given the Fed’s determination to take inflation back down to their 2% target and causing the USD to strengthen against almost every global currency.
Although the macro headwinds heading into 2023 appear daunting, my longer-term outlook on oil remains bullish as we approach what I call the Structural Supply/Demand Singularity point, where even a recession-impacted aggregate demand level for oil EXCEEDS global spare capacity.
I believe that the aggressive global central bank War On Inflation will likely produce short-term cyclical deflationary headwinds to oil but will only exacerbate the longer-term capex starvation for the industry."