Americas News
Crude Prices Drop Despite Unexpected Inventory Decline - But Analysts Warn of "Ballooning" Supply
More evidence that the U.S. dollar is more influential to crude traders than fundamentals was offered on Thursday when the dollar, having risen to a more than one-week peak against other currencies, caused West Texas Intermediate to drop 56 cents to $61.12 and Brent to fall 50 cents to $64.92 per barrel.
This was despite the American Petroleum Institute reporting an unexpected drop in U.S. crude inventories by 907,000 barrels, to 420.3 million barrels, for the week to February 16 - due to improved pipeline infrastructure to the Gulf coast and decreased supply via the Keystone pipeline.
Stephen Innes, head of trading for Asia-Pacific at OANDA, stated the obvious: "The firming dollar continues to thwart investor sentiment despite the bullish inventory data."
But to be fair, such data may be extremely short lived: the International Energy Agency warned that rising oil supply from non Organization of the Petroleum Exporting Countries (OPEC) may cover demand growth for the next two years, thus forcing the cartel to extend its production cuts - which it claims have just about rebalanced the market - until the end of the decade.
Fatih Birol, executive director of the IEA, said "We're seeing a significant amount of non-OPEC oil coming to the markets," and he cited rising output from North America, Brazil, and Mexico.
But he still maintained his earlier conviction that after 2020, the market could destabilize due to high demand, maturing fields, and under-investment in new supply.
Barnabas Gan, commodity economist at OCBC Bank, is of the same mindset: he told Bloomberg television that the steadily increasing output from U.S. shale producers has made the market vulnerable to "ballooning supplies," and that in the first quarter of this year they will "push prices lower......I wouldn't be surprised for oil prices to inch below $60."
Gan believes the OPEC cuts have been successful, but "the climate surrounding oil prices still appears to be a fragile one.....we believe the market watchers and investors out there are eyeing very closely how the fundamentals may evolve in the coming year; I am pretty sure OPEC knows this, and I'm pretty sure the U.S. shale producers know this as well.
"Any risk of ballooning supplies is a very key driver and a potential risk for prices to inch lower; so yes, I would believe that producers, even as of today, should remain cautious into the next year to come."
Strictly from a logical viewpoint, crude trading behaviour has lost any semblance of reason: earlier this week, crude prices dropped due to expectations that U.S. inventories would have risen more than anticipated.
