Americas News
Continuing Crude Rally Causes More Worry About U.S. Shale Growth and Predictions OPEC Will Rethink Cutback Strategy
As anticipated, the Energy Information Administration confirmed earlier reports that U.S. crude inventories fell 4.9 million barrels last week - and even though bigger than expected builds in gasoline and fuel stocks offset that drawdown, it was enough to cause West Texas Intermediate on Wednesday to settle up 61 cents to $63.57 per barrel and Brent to climb 34 cents to $69.16 per barrel.
Olivier Jakob, managing director of PetroMatrix, noted, "We're still drawing U.S. stocks and that continues to support a very positive sentiment," and he added that physical Brent above $70 per barrel will surely trigger discussion among Organization of the Petroleum Exporting Countries (OPEC) members about the need to continue their crude output cutbacks.
Kevin Book, head of research for oil, gas and coal at Clearview Energy Partners, speculated that the seasonal drop in oil demand in the first half of this year could pull crude futures out of sync with other rallying commodities: "On a fundamental basis, the first half of year is about 1.5 million barrels per day weaker from a demand perspective than the second half of the year."
While these seem like muted responses to another remarkable day in trading, other experts were more explicit in stating their misgivings about the high prices: specifically, Stephen Innes, head of trading for Asia/Pacific at Oanda, argued that the fuel market has overheated: "Markets are getting a bit fatigued, and a healthy correction could be on the cards."
Jeff Currie, global head of commodities research for Goldman Sachs, believes that if prices keep rising it will trigger greater investment by U.S. shale drillers or central bank interventions to temper inflation: "OPEC members do not want to see that; we'll see more noise and rhetoric if prices trade above $70 a barrel in coming days to push this market back down."
Currie also told Bloomberg television that the "new oil order" consisting of the U.S. shale revolution "is still very much underway, putting downward pressure on long term oil prices.
"So while you have upward pressure on the front, you have downward pressure on the long term price, which is creating a rotation on the oil forward curve....called backwardation; while we expect oil prices to remain flat and maybe slightly down here, the investment return we think will be significant, really being driven by the shape of the forward curve."
Earlier this week, Bijan Namdar Zanganeh, oil minister for Iran, echoed the sentiments of his counterparts in Iraq and Nigeria by saying OPEC doesn't want oil above $60 because it would provoke too much shale growth; however, Saudi Arabia is presumably happy with the rally as it adds value to its initial public offering of state-run Saudi Aramco.
