EMEA News
Dismal Asian Data, Prudent Saudis, and the "Sultans of Swing" Will Determine Oil Prices: Analysts
After speculation that oil prices would either plunge into the $30 range by year end due to conditions in China or go as high as $70 due to the inability of the U.S. to revive its lost shale production, analysts are now suggesting that prices may have hit their peak.
In response to U.S. crude trading below $49 on Monday after hitting $51.23 last Wednesday, John Kilduff, founding partner of Again Capital, told CNBC's Squawk Box that worsening investment and manufacturing data emerging from Asia will cause Chinese demand to "fall off a cliff" within the next month, and "once we lose that pillar of demand, this market should unravel again."
To support his argument he pointed to FactSet figures showing that China's fixed asset investment growth slowed to 9.6 percent in the January-to-May period, compared to 10.5 percent in the January-to-April period: the slowest growth since 2000.
He also cited Japanese machine tool orders, which is a proxy for capital expenditure, falling by 25 percent year over year in May, following a similar slide in April.
Kilduff remarked, "The battering you've seen the Asian markets take overnight is central to undermining the recent rally that we've had."
Francisco Blanch, head of global commodities and derivatives research at Bank of America Merrill Lynch, told the press that crude prices could drop by as much as $10 per barrel as this summer's driving season winds down.
Blanch added something new to the long list of theories about what will happen to the oil market in the foreseeable future, by stating that he is focusing his attention on demand in India, Turkey, and the Philippines, which he calls "the new sultans of swing": "I think that's what's going to adjust the market ultimately, so we've got to really keep a close eye on demand in emerging economies here."
In the midst of all this speculation comes the revelation that Saudi Arabia may be good for its word and won't flood the already glutted market with more product: an industry source told Reuters that its crude production in May was 10.27 million barrels per day, about the same as in April.
However, a growth in U.S. rig count for the second week in a row has caught the attention of analysts such as Kilduff, who remarked that if the count increases by double-digit figures (this week's count is up by six rigs), it would be "significant."
The Canadian count was up by 24 rigs and the number of international oil rigs increased by nine, for totals of 65 and 955, respectively.
All told, the mood of prognosticators is markedly more downbeat this week than last, when Tom Ward, CEO of Tapstone Energy, dismissed the notion of $30-$40 oil and said it would reach $70 per barrel due to relative non-activity from U.S. producers.
