Americas News
Crude Slides and BP Sees Potential for a Price Correction
Despite a bravura outlook for crude prices expressed by many analysts in the wake of market gains made earlier this week, all it took was the U.S. dollar surging into positive territory for 2018 on a four-month high to cause U.S. crude to sink nearly 2 percent to a two week low, according to CNBC.
Others claim that Tuesday's weak performance was due to something many experts have downplayed in their recent market assessments, namely, an unexpected build in crude inventories.
Either way, West Texas Intermediate finished Tuesday's session down $1.32 per barrel at $67.25, after settling up 47 cents on Monday; Brent dropped $1.46 to $73.23 per barrel, compared to the 53 cent gain it achieved on Monday.
Gene McGillian, vice president at Tradition Energy, insisted that "The strength of the dollar is where the pressure is coming from," referring to a stronger dollar making greenback-denominated oil more expensive to holders of other currencies.
He pointed out that the prospect of the U.S. cancelling the Iran nuclear deal and reimposing sanctions has already largely been priced in, underpinning the market.
But Julianne Gregor, a researcher for Divergente LLC, says Tuesday's trading was influenced by the American Petroleum Institute reporting a build of 3.427 million barrels of U.S. crude inventories for the week ending April 27, "compared to analyst expectations that this week would see a smaller build in crude oil inventories of 739,000 barrels."
She added that the API also "reported a build in gasoline inventories for week ending April 27 in the amount of 1.602 million barrels - a surprise given the 587,000 barrel draw that analysts had expected."
Even though Monday saw an unusual amount of bullish sentiment for crude reported by media, an abrupt change of sentiment characterized analyses on Tuesday, exemplified by Brian Gilvary, chief financial officer for BP.
He told CNBC that oil prices look to have climbed to unsustainable levels and that "Sometimes people forget that actually, it was not that long ago we were down at $28 a barrel … I think oil prices today feel a bit frothy."
He went on to speculate that "Geopolitics is now playing into where the price is, and so I think you could see an oil price correction quite comfortably."
As depressing as such statements may be, it's hard to ignore fundamentals that include surging production in many parts of the world as well as in the U.S., plus an alarming lack of investment compared to past years in exploration and discoveries on the part of energy producers.
Indeed, the latter was very much on the minds of Goldman Sachs numbers crunchers last week, leading them to state that the phenomenon will result in a "very, very tight market in the 2020s."
