15 Sep 2023
Oil prices have reached their highest level since November of last year. Brent recently broke through the $90/barrel mark, following a sustained rally that began at the end of June. While oil’s behaviour in the first half of this year was largely characterized as ‘rangebound,’ recent price action is prompting a debate about whether oil is in a bull market.
Source: Bloomberg, data as of 13 September 2023.
Historical performance is not an indication of future performance and any investments may go down in value.
What the bulls say
Source: Bloomberg, data as of 13 September 2023.
Currently, markets are predominantly leaning towards the bullish case, and the backwardation3 in oil futures has increased over the past month4. This indicates that the market’s perception of tightness in the oil market has intensified.
The bear case
The bears remind us that even for OPEC+, an ever-increasing oil price is not the goal, as it can result in demand destruction. $90/barrel may be the sweet spot that OPEC+ is comfortable with. If the price exceeds $100, Saudi Arabia and Russia may reconsider their stance on additional voluntary cuts during one of the upcoming monthly reviews.
Bears also reflect on the last time oil exceeded $100 and point out the differences. Oil prices rallied in Q1 2022 when the Russia-Ukraine war began, and markets immediately began to factor in significant disruptions in supply. In the following months, the European Union banned the import of Russian oil. All of this was happening as global demand was swiftly recovering post-Covid.
Now, markets are aware that Russian oil is still finding its way into markets worldwide, and the global economy is showing signs of slowing down. Bears will also highlight that Chinese manufacturing has yet to demonstrate clear and sustained acceleration. If data from China disappoints again, markets may fear that China’s robust oil demand this year could take a hit.
There is also a third scenario in which oil neither reaches $100 nor drops to $75 in the immediate future but instead hovers around $90, a level Saudi Arabia might not object to. A stable oil price is possible, albeit relatively unusual, especially given the forces that are pulling it in either direction.
1 Trading Economics, 13 September 2023
2 The Organization of the Petroleum Exporting Countries and its partners
3 Higher spot prices than futures prices
4 Observed using Bloomberg data as of 13 September 2023
About the Contributor
Mobeen is a member of WisdomTree’s research team where he focuses on a wide range of asset classes to offer strategic and tactical insights to our clients on global markets and investment products.
Before joining WisdomTree in December 2018, Mobeen worked at Willis Towers Watson as an investment consultant advising institutional clients as well as their in-house fund business on asset allocation and portfolio construction with his research focus being equity and multi-asset smart beta.
Mobeen has a BSc (Hons) in Accounting and Financial Management from Loughborough University and an MSc in Accounting and Finance from the London School of Economics and Political Science. He is also a CFA Charterholder.
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