Crude oil prices surged in October, leading many to think that the war in Israel, the ongoing war in Ukraine, and OPEC production cuts would lead to prices rebounding back to their 2022 peak.
Instead, the rally stalled as seasonal shifts to winter-grade gasoline and lower post-Labor Day driving demand took hold, causing crude oil prices to collapse. The decline has been significant, but it didn't surprise everyone.
Real Money Pro analyst Carley Garner accurately predicted in November that the most likely path for West Texas Crude Oil prices was lower, predicting that the most likely path was for it to fall to $68 per barrel.
The forecast was particularly prescient, given prices recently dipped below $69. Now that Garner's price target has been met, she recently updated her analysis, including a prediction for what crude oil prices could do next.
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Global uncertainty remains, but U.S. production surges
Oil prices rose between summer and fall, partly due to speculation that OPEC would increase production to support prices.
In June, OPEC+, which includes Russia, voted to extend 3.66 million barrels per day of production cuts through 2024. Saudi Arabia, the world's largest crude oil producer, also announced it would reduce daily production by an additional million barrels beginning in July. Saudi Arabia extended its production cut through the end of 2023 in September.
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As a result, the U.S. Energy Information Administration reports that OPEC production was just 27 million barrels per day in August, a two-year low. Production in Saudi Arabia was 8.7 million barrels daily, the smallest output since May 2021.
Speculators' assumption that cuts would prop up prices and OPEC would announce additional cuts in December led many to bet too aggressively on higher prices.
Those assumptions failed to adequately consider surging U.S. production, offsetting OPEC cuts, and lower demand due to weakening global economies, including in Europe and China.
According to the EIA, U.S. crude oil production reached an all-time daily record of 13.2 million barrels in September, up from 12.3 million one year ago. The U.S. is the largest oil producer, and much of its growth is due to surging production in the highly profitable Permian Basin, the latest oil field in America.
Permian Basin production has grown to about 6 million barrels per day from 1 million in 2013, thanks to more effective horizontal shale drilling.
Crude oil prices have also retreated since October because of typical seasonal slowing in U.S. demand stemming from the switch to winter-grade fuel, which happened a bit earlier than usual this year, and less gasoline demand once summer travel ended.
They also have retreated as fears of War in Israel expanding have diminished.
"Speculators incorrectly priced the impact of OPEC+ supply cuts and later erroneously bid the price of oil higher in anticipation of Middle East supply disruptions. The liquidation of those positions by bullish speculators drove prices lower, not speculative short selling," wrote Garner in November.
Crude oil price charts reveal a new target
Since West Texas Crude Oil prices have retreated nearly to Garner's $68 target from November, she recently updated her analysis, including price targets.
The good news for oil traders is that Garner thinks that oil may find its footing and head higher.
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"Although we don't have a crystal ball, the odds of a Covid-type black swan event in the coming months are minuscule, and we doubt OPEC+ will reopen those wounds. Thus, we expect prices to hold support near $68," says Garner. "The lows of this move might be in, but if not, we believe they are near."
If Garner is right, oil should begin acting better soon. If it does, better performance would be in line with historical seasonality.
"Oil seasonality turns bullish in the second or third week of December," says Garner.
How high could crude oil go if it rallies? Garner is a futures trader who uses technical analysis to help map out likely prices. After considering the crude oil futures price chart, she thinks that if West Texas Crude oil holds in the mid- to high-$60s per barrel, it could climb substantially.
"If this area does hold, we see a return to $100 per barrel," says Garner. "The uber bulls are pointing toward $115 and $127 as possible targets, but we aren't that bullish. We believe technology will continue to thwart demand and improve production efficiency."
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