I try not to write too much here about crude prices, as important as that market is. Largely, that is because crude moves so quickly that by the time you read anything I might write on that subject, the article will almost inevitably be out of date. So, I tend to only write about oil prices when I believe a big or sustained move is coming, or when I feel a trend will dominate a particular month or quarter.

The last time I offered up an opinion on crude in these pages, for example, was back in June, when I pointed out that the sharp rise in oil prices to around $75 following an escalation in the war between Israel and Hamas was an overreaction, and that I was expecting a quite rapid pullback. That panned out quite well, with oil trading below $65 just a few days later.

As you might expect after a straight line move like that, there was a small bounce back, but then we headed lower again, and crude futures traded below $65 for most of August.

The logic behind my call in June was that if you believed as I did that the escalation in the current iteration of the 4,000-year-long war in the Middle East was neither particularly significant for the market nor likely to be long-lasting, oil would inevitably turn lower once the panic subsided, given the fundamentals of supply and demand.

Since then, those fundamentals have become even more bearish, and another move lower, even from a starting point around $63, looks to be on the cards.

There are issues…

I try not to write too much here about crude prices, as important as that market is. Largely, that is because crude moves so quickly that by the time you read anything I might write on that subject, the article will almost inevitably be out of date. So, I tend to only write about oil prices when I believe a big or sustained move is coming, or when I feel a trend will dominate a particular month or quarter.

The last time I offered up an opinion on crude in these pages, for example, was back in June, when I pointed out that the sharp rise in oil prices to around $75 following an escalation in the war between Israel and Hamas was an overreaction, and that I was expecting a quite rapid pullback. That panned out quite well, with oil trading below $65 just a few days later.

As you might expect after a straight line move like that, there was a small bounce back, but then we headed lower again, and crude futures traded below $65 for most of August.

The logic behind my call in June was that if you believed as I did that the escalation in the current iteration of the 4,000-year-long war in the Middle East was neither particularly significant for the market nor likely to be long-lasting, oil would inevitably turn lower once the panic subsided, given the fundamentals of supply and demand.

Since then, those fundamentals have become even more bearish, and another move lower, even from a starting point around $63, looks to be on the cards.

There are issues on both sides of the pricing equation.

From a demand perspective, there is some evidence that after outperforming the rest of the world in the post-Covid era, the US is looking at a slowdown. By the time you read this, the August jobs report will have been released. As I write, it’s uncertain what that report will show, but Thursday’s ADP jobs data suggests hiring is slowing down.

If hiring does turn out to have been slow and/or if the unemployment rate rises, it will confirm what other forward-looking data, such as PMI and consumer confidence, have been hinting at for a while…that the US economy is slowing down. You might blame the Fed for that, or maybe tariffs, or whatever your political beliefs lead you to believe is the problem, but the “why” doesn’t matter. What does matter is that economic activity in the US seems to be entering a period of slowing down.

That is not just my opinion. Many corporations say they share that view, and the major oil firms, which have historically been very good at economic forecasting, have been cutting workers and decreasing output recently. That isn’t a good sign, but at least it would normally mean that the risk for oil prices was to the upside. If US firms are cutting back in expectation of a slowdown that doesn’t materialize, that could lead to a tight market in Q4, or at the very least some price stability as lower supply meets lower demand.

Unfortunately for oil bulls, however, US output is only part of the supply side story. Just as important, maybe more so, is what OPEC+ chooses to do. That group will meet on Sunday, August 7th to decide on October production targets, and the consensus view is that they will once again allow for more crude output.

So, we have what looks like some upcoming economic weakness, paired with a likely increase in crude production from the largest, most influential entity in the market. Given that, even $63 per barrel for WTI looks pretty high, and spending the next few months in the sub $60 zone looks like a distinct possibility.