The forward curve for WTI (West Texas Intermediate) oil has shown a sharp shift over the past year, Standard Chartered analysts noted in a new report sent to Rigzone.
“While the entire curve has moved lower year over year, the back end of the curve has fallen more,” the analysts said in the report.
“The usual smooth asymptote converging to a long-term oil price level has transformed into a near-straight line that points lower and lower. The main question is whether the collapse at the back of the oil price curve is a market signal or a market failure,” the analysts added.
“The loss of the asymptote is a vote of no confidence in the long-term future of oil… We think not. Our view is that the long-term price collapse is evidence of a market failure ; rather than being a market signal, it shows a failure to provide a useful long-term price signal,” the analysts continued.
In the report, Standard Chartered analysts noted that they believe much of the change is due to “increasingly poor definition of long-term prices due to lower market liquidity along the curve.”
“Previously, when the back of the curve fell too far, there were several large investors willing to add significant length and thus anchor the curve,” the analysts said in the report.
“However, as liquidity along the curve has dried up in recent years, this process of price arbitrage over time began to take longer, and we believe it is now not happening at all . If anything, the long-term trade has shifted ahead of the curve,” the analysts added.
“For example, we believe that short-term views are increasingly defined by long-term banners (commodity supercycle, peak oil demand, etc.) rather than current conditions. Perhaps ironically, in the same so that while the usefulness of tradable market signals about long-term relative energy prices is growing (due to, among other things, energy transition planning), the signals themselves are fading, losing definition, and they become more opaque.” analysts continued to assert.
WTI, Brent Forecasts
In its latest report, Standard Chartered projected the WTI price to average $88 per barrel in 2023, $95 per barrel in 2024 and $106 per barrel in 2025.
According to the report, the company expects the commodity to average $87 per barrel in the second quarter of this year, $85 per barrel in the third quarter and $91 per barrel in the fourth quarter. The WTI price is expected to average $89 per barrel in the first quarter of next year and $91 per barrel in the second quarter of 2024.
Standard Chartered forecasts the price of Brent oil to average $91 per barrel in 2023, $98 per barrel in 2024 and $109 per barrel in 2025, the report shows. According to the report, the company expects the commodity to average $90 per barrel in the second quarter of this year, $88 per barrel in the third quarter and $93 per barrel in the fourth quarter. Brent is expected to average $92 per barrel in the first quarter of 2024 and $94 per barrel in the second quarter of 2024, the report said.
The US Energy Information Administration’s (EIA) latest short-term energy outlook, released earlier this month, projected the WTI spot price to average $77.84 per barrel in 2023 and $71.57 per barrel in 2024. The Brent spot price was forecast to average $83.63. per barrel in 2023 and $77.57 per barrel in 2024 in the latest STEO.
At the time of writing, the price of WTI is trading at $74.08 per barrel, while the price of Brent is trading at $80.81 per barrel. Both commodities have risen this year, with WTI closing on January 4 at $72.84 a barrel before rallying to a close of $87.47 a barrel on January 26, falling to a close of $73.39 per barrel on February 3 and rise again to close at $80.14 per barrel on February 13.
Brent closed on January 4 at $77.84 a barrel before rising to a close of $88.19 a barrel on January 23, falling to a close of $79.94 a barrel on February 3 and rising to a close of $86.61 per barrel on February 13.
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