Americas News
Analysts Now Warn of Weakened Demand and More Corrections as Crude Slides on Stock Market Sell Off
What a difference a weekend makes to the outlook of the analytical community focused on crude: whereas last week saw respected institutions predict that oil will skyrocket to $80 later this year, now the experts cite danger signs that herald a significant correction - all because U.S. crude on Monday dropped again, this time by 2 percent.
West Texas Intermediate settled down $1.30 to $64.14, while Brent dropped $1 to $67.58 per barrel.
Brian LaRose, technical analyst at United-ICAP, remarked, "We're definitely starting to raise some serious red flags, especially in the $67 area for Brent; if we can get a bounce off that area, that would suggest to us we have the possibility to work higher, but it would suggest the sideways consolidation period could continue."
Monday also saw the Dow Jones Industrial Average dropping by over 600 points, which caused LaRose to worry that oil could incur further losses: "If you don't see some signs in the equity markets finding their footing then that will be headwinds for the energy complex as a whole."
Michael Lynch, president of Strategic Energy & Economic Research, shared LaRose's concerns by remarking, "This is contagious from the financial markets and the equity market, especially; people worry that the demand may be not as robust over the next couple of quarters as people have been anticipating."
He was referring to the fact that U.S. drillers last week added six rigs to raise the number of machines drilling for crude to 765, the highest since August 11, and a strong indication that American output will exceed even the !0 million barrel per day mark breached in November.
Alejandro Barbajosa, VP, crude & LPG - Middle East & Asia-Pacific - at Argus Media, believes the American activity ensures a certain cap on prices over the next few years: he said that aside from any strength derived from the dollar, "there are clear signs now that U.S. producers are really committed to keep investing huge amounts of money into bringing additional output from the Permian Basin."
Therefore, he added, "that surplus we've seen for the past few years may be more difficult to erase, even as OPEC [the Organization of the Petroleum Exporting Countries] continues to cut output."
Barbajosa agreed with his CNBC host that sentiment has been an important driver in current crude prices, but that demand is also a vital factor; however, unlike the wildly optimistic forecasts offered by major banks last week, he took a longer view and predicted that due to increased supply, Brent will sell at only $58 per barrel by 2020.
Much of the reasoning for $80 crude was driven by the notion that the OPEC cuts are working, demand is high, and investment is low, thus creating a massive price upswing; Bloomberg also sided with this reasoning and last week published a remarkable story that attempted to debunk many argument advanced by those who believe fundamentals paint a far gloomier picture for crude performance in coming months.
