WTI ended the week up only 73c to $71.64/Bbl as the Federal Reserve turned slightly more hawkish. Fed comments this week helped send the dollar to a two-month high, adding downward pressure on oil prices. Iran’s presidential election takes place on Friday, June 18, possibly yielding new leadership for the U.S. and E.U. to negotiate with.
Policymakers at the Fed now expect to start raising rates at a faster pace. Their median forecast now calls for the rate range to be a half percentage point higher by the end of 2023. The dollar spot index rose from 90.5 to just under 92.50 on Friday in response to Fed policy. Oil prices were quite resilient despite the rise in the dollar. WTI was down $1.11 on Thursday following the Fed’s remarks but still managed to eke out a weekly gain.
The most bearish risk to price for the remainder of 2021 remains Iran and the potential barrels they could bring back to the market, in our view. Some analysts believe it could be months before a deal is reached, and according to consultant Energy Aspects, Iranian exports would not reach full potential until this time next year. The timing and pace of returning Iranian barrels is an unknown for the oil market.
AEGIS hedging recommendations remain unchanged from last week. Due to near-term risks, we advise using swaps in the balance of 2021. For the first half of 2022, utilize either swaps and collars. Starting in the second half of 2022, we suggest hedging with collars. We believe the back half of 2022 provides the best chance for oil to move higher as excess global supply becomes scarce.