There is no shortage of bullish and bearish sentiment towards the price of oil. The bearish camp thinks that we will be going into a deep recession which will lower demand for oil which will then push oil prices lower. The bullish camp believes there is a disconnect between the paper market (futures market) for crude and the real market for crude.

 

It's important to understand the distinction between the physical market for crude and the futures market for crude. The physical market for crude, also known as the cash market, is determined purely by supply and demand. Trades that are made on this market settle immediately for delivery and are usually done between producers and refineries. The futures market is determined by the supply and demand of what people think oil will be in the future. The futures market allows traders to bet on what they think the price of oil will be three months to three years from now.

 

The current futures market is showing that the price of oil will go down from $94 today to $84 in October 2023. However, the physical market is much tighter, and prices are actually going up. Just last month, Saudi increased all immediate delivery prices to its Asian customers. Many traders believe this is a sign that oil prices may skyrocket over the winter season. Especially when you consider that high natural gas prices in Europe may trigger some energy facilities to switch from gas to oil.

 

So deep recession or skyrocketing oil prices? We will find out over the next few months.

 

Alberta natural gas prices go negative.

Not everything is bullish for the oil and gas sector right now. As US gas producers receive $9 US/MCF and European gas producers receive $34 US/MCF, Western Canada natural gas producers actually had to pay $0.19 per MCF on August 22 to produce their product. While natural gas prices rally all around the world, Canada is yet again left on the outside looking in, I guess pipelines really do matter. The Coastal gas link pipeline can't come soon enough, unfortunately it's not scheduled to be in service until 2025.

 

I have also included a piece from our CIBC Economics team entitled "Will higher rates derail the consumer?"

 

If you have any questions, please feel free to give us a call at any time.

 

Have a great weekend.

 

Milan