Commodities & Energy Sector
Machine learning has made significant progress in the physical sciences, although it has some ways to go in the social sciences. When asked to make predictions on oil markets, ChatGPT's responses lack in-depth analysis given its inability to understand the language and think critically. While in its current form, AI cannot replace forecasters, its wide breadth of 'knowledge' makes it useful in developing forecasting frameworks in unfamiliar domains.
We are strategically bullish on the outlook of the energy sector. Domestic and external political constraints asserted themselves, restraining the most negative impulse against this sector by the Biden administration. Go long energy versus cyclicals (ex-tech).
The normalization of oil storage markets in the Northern Hemisphere; strong demand, aided by China stimulus this year; and continued production discipline supports our view Brent prices likely have bottomed, and will move higher from here. We raised our 2023 Brent forecast $2/bbl to $92/bbl. Our forecast for next year is revised upward by $5/bbl to $120/bbl. Price risk remains to the upside, particularly if KSA exercises its option to extend production cuts of 1mm b/d.
