Crude oil prices slip below $80 on Thursday. What international factors are allowing oil prices to slip lower?
OPIS Global Head of Energy Analysis Tom Kloza describes previous forecasts calling for over $100 per barrel as over-exaggerated and the trajectory for US gas prices over oil market pressures.
"The biggest fundamental in the price of oil is money flow, and right now it looks as though some of the huge, huge funds that manage commodities across the spectrum will have to get rid of some of their holdings in WTI and Brent in January of 2024 — that might be $3 billion in investment money coming out the market."
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JOSH LIPTON: And oil extending its decline, so you're falling below $75 a barrel.
The move lower comes as US oil stockpiles rise to the highest level since August, while concerns swirl over China demand.
Joining us now is Tom Kloza, OPIS Global Head of Energy Analysis.
So Tom, I don't know if you heard, I was talking to Julie.
It was not long ago at all, Tom, we were asking guests, hey, we're spitting distance of $100.
Now, I'm looking at Brent here, Tom, it's at 77.47.
Explain this move to us, Tom.
Is this just the conversation?
The focus, is it moving from geopolitical risk to demand?
Is that what's going on?
TOM KLOZA: Well, I think that the predictions of $100 and higher were really hyperbole.
And they were based, you know, coming from people who had a vested interest in prices going higher.
The reality is that between the summer and the beginning of the winter, you tend to see a downcycle for crude that would take Brent to probably about 72 and change.
And so what this proves is that you can have problems in the Middle East, and you can have all sorts of geopolitical possibilities.
But until you prove it to the market, they're not going to pursue those higher crude prices.
And in the meantime, we're seeing the lowest wholesale gasoline prices since March of 2021.
So there's going to be a significant headwind for-- excuse me-- tailwind for consumers on their expenses for fuel.
JULIE HYMAN: And Tom, you're also looking at the seasonal factors going into early next year.
And you're watching what big funds who hold energy do with those holdings.
Is this something that tends to happen at this time of year?
Or is there something this year that makes it particularly interesting to watch?
TOM KLOZA: Well, Julie, the biggest fundamental in the price of oil is money flow.
And right now, it looks as though some of the huge, huge funds that manage commodities across the spectrum are going to have to get rid of some of their holdings in WTI and Brent in January of 2024.
That might be $3 billion of investment money coming out of the market.
So that's going to be a real hurdle.
And if you combine it with a warm winter, which I believe the folks from the National Weather Service today predicted a warmer winter for the places that use heating oil, it's going to be very challenging for oil prices.
Now we haven't heard from the Saudis yet.
We'll hear from the Russians.
But when they say they're going to cut production, it doesn't mean anything.
But I suspect that next week at the OPEC meeting, we'll see the Saudis talk about continuing their unilateral cuts through the first quarter of 2024.
JOSH LIPTON: And Tom, when you think about your outlook for oil, where it heads from here, how does China play into that?
TOM KLOZA: Well, China has been the dog that has embarked all year.
It really hasn't.
China is very, very weak.
They import a little bit more crude last month.
But if you look at the PMI indices and some of the other measurements of Chinese economic demand, it's not exactly gangbusters.
So that might be something to throw in the mix in 2024.
But they've been missing in action in most of 2023.
JULIE HYMAN: Tom, put it all together for us in terms of what all this is going to mean for US consumers.
We've been talking a lot about with retail earnings out the various dynamics that are going to be at play during the holiday season.
What about gasoline?
TOM KLOZA: Well, people are going to have more money to spend based on spending less for gasoline.
I think that we're going to go through Thanksgiving weekend with an average price well under 3 and a quarter.
And I think most people in the country, with the exception of those on the Pacific Coast, are going to be able to buy fuel for less than $3.
And you know, I always say this gasoline is special when it comes to money that you spend on it.
When prices go higher, people get annoyed by high gas prices like I get annoyed with the Dallas Cowboys.
So it doesn't have quite the visceral response that we've seen in the last couple of years.
And that's a good thing for a consumer outlook and for sentiment.
JULIE HYMAN: But they might cut back on their purchases of gasoline.
Do you stop going to two Cowboys games when you get annoyed with them, Tom?
TOM KLOZA: Well, I'm a Giants fan so I'm-- JULIE HYMAN: Oh, all right.