Raymond James Blames "Fake News" for Crude's Woes, Insists Market Should be Bullish

by Ship & Bunker News Team
Thursday July 6, 2017

Evoking a favoured phrase of U.S. president Donald Trump, Raymond James analysts are blaming "fake news" for exacerbating crude's recent descent into a bear market at a time when they insist the bulls should predominate - gloomy fundamentals notwithstanding.

In a note to investors this week, the analysts wrote, “The recent collapse in oil prices was triggered by a breakdown in the technical charts but fueled by the ‘negative feedback loop’ of bearish headlines that usually follow price declines.

“Some oil price headlines have been misleading, or outright wrong, and they have distracted investors from what we believe is fundamentally a bullish overall picture.”

The "fake" or misinterpreted news they claim has negatively influenced traders includes the contention that U.S. shale growth is flooding the market, as is recovering Nigerian and Libyan output; U.S. gasoline demand is weakening; the Organization of the Petroleum Exporting Countries (OPEC) cut are worthless; rising global floating storage indicates deteriorating supply and demand; and 2018 supply growth will exceed demand growth.

The analysts pointed out that U.S. crude inventories have averaged “massive” declines of 280,000 barrels per day (bpd) since March, compared to a mean build of 180,000 bpd during this seasonal period over the past decade.

They added that extrapolating this to the global level with refined products included implies that crude "inventories have been falling by about 1.2 million bpd over the past four months"; they also called the fear of rising production in other countries "overstated," as is the fear of the death of U.S. gasoline demand.

The analysts concluded that in the absence of fake news, crude could rise to as much as $65 per barrel; Bloomberg, which reported their contentions, noted that "The analysts neglect to bring up one of their own old calls: that West Texas Intermediate would touch $80 per barrel this year."

Indeed, few if any analysts side with Raymond James, after expressing bullish sentiment during crude's recent eight-day gains: the latest forecast from Deloitte released Wednesday states that while OPEC cuts have kept prices around $50 per barrel for most of the last quarter, higher U.S. and Canadian production will keep prices flat for the foreseeable future.

Andrew Botterill, a partner with Deloitte, said, "I think all of industry was expecting this type of volatility to take shape and we expect to see more of that in the coming year," and he predicted West Texas Intermediate prices will remain between $45 and $60 for the next three years.

As if to cap this week's prevailing sentiments, Andy Hall, a notably bullish hedge fund manager, told investors in a letter this week that the global crude market has "materially worsened" and prices could be stuck at $50 or below.

Perhaps buying into some of the "fake" news Raymond James complained about, Hall said U.S. shale drilling is expanding “at a surprisingly fast rate, thus raising the odds for significant oversupply in 2018, even if OPEC maintains its production cuts."

One thing is certain: it's challenging to take faith in any single source of analysis, as evidenced by Stephen Schork, president of Schork Group Inc., who last week worried about the bull market collapsing in September, then earlier this week declared that any large outside move "would be to the upside," and a day later switched gears and said, "I would not be surprised if the bearish fundamentals take hold."