Please enable JavaScript to view the comments powered by Disqus.

Economic Forecasts

OPEC Keeps Oil Markets Jittery

Kiplinger's latest forecast on the direction of energy prices

iStockphoto

GDP 1.5% growth for the year; a 2.1% pace in '17 More »
Jobs Hiring at 150K-200K/month through '16 More »
Interest rates 10-year T-notes at 2.5% by end '17 More »
Inflation 2.0% for '16, 2.4% in '17 More »
Business spending Slight gain in '17 after flat '16 More »
Energy Crude oil trading from $40 to $45 per barrel in Dec. More »
Housing Single-family starts up 9% in '16, 11% in '17 More »
Retail sales Growing 3.7% in '17 (excluding gas) More »
Trade deficit Widening 4% in '17, matching increase in '16 More »

All eyes in the energy market are on OPEC this week as the cartel seeks to hash out a deal to cut oil production at its meeting in Vienna. The price of benchmark West Texas Intermediate crude has been extremely volatile, jumping on any rumor that a deal has been reached and plummeting whenever an OPEC official warns that agreement could prove elusive.

We expect markets to remain jumpy in the near term. OPEC is impossible to predict with certainty, but we are still skeptical that the group will be able to do what it has failed at for the past two years: Reach a lasting consensus on the need to curb oil production.

Via E-mail: Energy Alerts from Kiplinger

Global oil markets remain oversupplied, which has kept prices weak since the autumn of 2014. But OPEC has been unable to act because of dissent within the group and robust oil production by nonmembers such as Russia. Cutting output now would likely give oil prices a quick lift. But that would encourage producers outside of OPEC to drill faster and pump more, rendering OPEC’s cut less effective. No OPEC member wants to reduce its own exports only to see energy companies in Texas reap the benefits.

Advertisement

Looking past the OPEC meeting, we expect WTI to trade between $40 and $45 per barrel in December, down slightly from its recent trading range in the mid- to high $40s.

Gasoline prices should gradually trend down. The national average price of regular unleaded, now at $2.14 per gallon, could touch $2 per gallon by late December--a nice Christmas present for motorists. Diesel, now averaging $2.38 per gallon, probably won’t change much in coming weeks.

Natural gas prices have rebounded from a brief swoon caused by a spell of warm autumn weather. Now that wintry conditions are returning across much of the country, heating demand is on the rise and gas stockpiles have started to decline. The benchmark futures gas contract recently traded at $3.19 per million British thermal units (MMBtu), in line with our expected trading range of $3 to $3.25 per MMBtu. At this point, only a sudden cold snap or unexpected warm-up is likely to jar gas prices out of that range.

Source: Department of Energy, Price Statistics