Wells Fargo: WTI to Stay in $50s Range for Next 12 Months

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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Slowing economic growth in the U.S. and around the world will keep West Texas Intermediate (WTI) crude oil "in the $50s" for the next year, Jay Bryson, managing director and acting chief economist for Well Fargo & Company (NYSE:WFC) (San Francisco, California), told about 2,000 oil company officials, bankers, analysts and investors Monday at The Oil & Gas Conference in Denver, Colorado. "I seriously doubt we're going to go to $80 a barrel in the next year," he added.

EnerCom Incorporated (Denver) sponsored the event, its 24th annual oil & gas conference in Denver.

Bryson noted that the U.S.' record economic expansion has been slowing for the last few quarters, and a slowing economy has less need for oil. A year ago, second-quarter gross domestic product (GDP) increased about 3%, but second-quarter 2019 economic growth slowed to about 2.25%, he pointed out. "A year ago, U.S. consumers had a tailwind -- the Trump administration's tax cuts put a little more money in their pockets. Spending went up. But this year, the tax cuts have fallen out of their paychecks."

U.S. exports declined 2% in June on a year-over-year basis, but there was an 18% reduction in exports to China, he said. "If you want to know the impact of the U.S.-China trade war, talk to a farmer." Bryson said.

Business fixed investment also is shrinking, the Wells Fargo economist said. "If you are Caterpillar Incorporated (NYSE:CAT) (Peoria, Illinois), is now the best time to make a billion-dollar investment? Probably not," he said, answering his own rhetorical question.

Despite the economic uncertainties created by the trade war, Bryson said the economic factors underlying the U.S. consumer and business sectors are strong. It's the potential outcome of the trade wars the U.S. is waging against China, Japan, Mexico and the European Union, that are the critical unknowns, he told conference attendees.

"It's bunk to say we're in a good position to win a trade war," Bryson told the EnerCom conference attendees. "I think the trade war will continue for some time, mainly because both parties have painted themselves into a corner."

Bryson listed several trade war assumptions, all of which could affect the U.S. and global economy, with collateral damage to the Oil & Gas and other industries:

• The United States recently announced 10% tariffs on $300 billion worth of imports from China. It is assumed that these tariffs go into effect on September 1, but they are not raised further.
• Agreement is reached or delayed further with the European Union and Japan on imported autos, which the U.S. threatened to limit on national security grounds.
• Mexico continues to do enough to ward off the imposition of U.S. tariffs.

Bryson predicted quarterly U.S. economic growth would average about 2% through 2020. Global economic growth continues to slow, and he forecast GDP growth in the Eurozone of 1% to 1.5% over the next 18 months. "It won't be a recession, but it won't be great -- it will be nearly stall speed."

The picture could dim further if Bryson is wrong and the forthcoming U.S. 10% tariffs on $300 billion of Chinese goods is answered in some way by China. "We don't see a trade deal being consummated anytime soon," he commented.

But things could brighten considerably, he acknowledged. "A breakthrough in artificial intelligence (AI) could be a productivity gamechanger, really almost another industrial revolution where the economy could grow by 3% to 4% per year." He added he didn't see that happening in the next five to 10 years.

Another possibility: Maybe he's wrong and the U.S. and China find a way to deescalate and settle their trade war.

"I've been doing this a long time, and I can't recall a situation when we had less control over the outcome," he said.

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