Oct 6, 2023 - Energy & Environment

Oil's October whiplash suggests rally may be temporary

Illustration of an oil barrel on a spring bouncing back and forth.

Illustration: Aïda Amer/Axios

What to make of oil prices plummeting this week? Goldman Sachs analysts, for one, say it's "transitory."

Catch up fast: Prices continued their slide Thursday, with Brent falling under $83, a double-digit drop over the last week.

The big picture: One reason gets to an important phenomenon: tracking gasoline demand, which moves oil markets, is not an exact science.

  • The Goldman note argues that some measures of falling U.S. consumption are "overdone."
  • "[A]lternative measures of demand implied by ethanol blending and from the DoE ('unadjusted demand'), and physical prices suggest demand remains robust," they write.

The intrigue: Elsewhere, despite recession worries, they argue that while "higher rates will likely weigh on GDP and oil demand growth, the soft landing remains on track."

  • Goldman also cites "technical factors," like last week's expiration of the November Brent contract, behind the drop.

What's next: Goldman argues that inventory draws, "robust demand" and OPEC's pricing power together will keep Brent in the $80-$105 range.

Yes, but: Predicting oil prices is notoriously tough, but other analysts see the potential for crude to rebound after the steep selloff.

  • "If China's outlook continues to improve, we could easily see a return back to the $90 level," Oanda analyst Edward Moya said in a note.
  • He also notes that OPEC+ has worked hard to get oil to $90 and "further bearishness could also trigger further output cuts by OPEC+."
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