August 12, 2022
We recently revised our oil forecast for the end of 2022 through to 2024. Learn about the adjustments we made to our forecast with the latest episode of TrendsTalk with ITR CEO and Chief Economist Brian Beaulieu.
The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.
Hello, I'm Brian Beaulieu, CEO and Chief Economist for ITR Economics, and thank you for joining me for this edition of TrendsTalk.We recently revisited our oil forecast.
We use West Texas Intermediate oil as our benchmark for crude, and we've taken it down in about, well, in the near term is about $15 a barrel by the end of 2022. Instead of running about 118, we had it running at about 103, close to there, give or take. Then by the middle of 2023, we have it running at about 100 and easing down in the second half of the year to about the low 90s. We feel we had to take the forecast down because inventories, well, they're still tight. They don't seem to be getting worse, particularly since the strategic reserve was used. And because demand is running below year-ago levels, presumably because of these higher prices, the dollar is staying strong, which helps keep the price of oil in line, gasoline prices are coming down. So we thought the drop in relatives height of oil prices would be warranted.
We're keeping it at a plateau though, although there's some easing as economy softens further in 2023, the first half of the year. That's consistent with our industrial production forecast and our GDP forecast. Then, undoubtedly, it will start to go up again. We have it rising in the fourth quarter of the year, just late in the fourth quarter, and it'll be rising again in 2024 in our estimation. It looks like a plateau just at a lower level than what we had before. It is consistent with the whole world slowing down production in the US running about 6% ahead of year-ago levels, which is enough to stabilize the price, but not enough to really bring down the price.
There are some risks to the forecast. On the downside, we could see production speed up even more, the economy soften up even more than we are anticipating will be the case. But on the upside, disruptions to supply remain a very real threat, particularly with the war going on. Clearly, the US can supply its needs. Saudi Arabia is running about at its capacity right now. It isn't a matter of producing the oil in terms of what we're going to be paying at the pump, et cetera, as much as it is refinery capacities at very high levels. We haven't seen levels like this since about the second quarter of 2018. We're running about 94% capacity at our refineries. That's going to keep it top that you can increase oil supply if you want, but it's not going to get to the consumer as readily as one might think.
So look for some stability. But again, we don't see it getting worse than what it was, certainly some moderation and that again, to us, means inflation is abating. The Federal Reserve does not need to be raising energy prices. I mean, the Federal Reserve does not need to be raising interest rates. Certainly, if it's concerned about energy pricing, then just wait. Inflation's going away in that sense. Unless the aim is to bring it back down to $80 a barrel, but they're not in charge of that. They are supposed to be in charge of full employment and price stability, not determining where those oil prices are going to go. We'll have to see what they decide, but oil isn't going to be one of the reasons why they have to keep pushing up these interest rates. They'll have their own other reasons I would imagine, but they're playing a very dangerous game when it comes to the economy in 2024, 2025. But for now, at least we are looking at some reasonable oil price stability. I don't know that I'd call it reasonable pricing. That's subjective, but at least it'll be price stability.
Expect a lot of beta though around that median of mind, the average of our forecast and you'll see that in the ITR Trends report. I expect we're going to get a fair amount of volatility so don't get upset from one week to the next. We're generally going to be following this plateau until it steps down again in 2023.
So thank you for listening. I appreciate it. I'm Brian Beaulieu.