Americas News
Crude Gains Trigger More Worries That Prices Are Either Not Sustainable or Will Climb Even Further
Once again, crude on Wednesday made impressive gains, this time setting a three year closing high on word that U.S. crude stockpiles have dropped for the tenth week in a row - and once again, experts reacted grimly to the gains.
West Texas Intermediate settled up $1.14 to $65.61 per barrel, the highest closing level since December 5, 2014, and Brent rose 59 cents to $70.55 - also a new three-year high.
This was said to be a reaction to the Energy Information Administration reporting that U.S. commercial crude stockpiles fell by 1.1 million barrels in the week through January 19 and that this puts total inventories at 411.6 million barrels, the lowest since February 2015.
John Kilduff, founding partner at Again Capital, noted that "Underpinning this is this weakened dollar: it's an incredible move in the dollar that's propping up commodity prices in general."
But Wednesday's market showing proves once again that nothing is satisfactory in the volatile energy sector: Wan Zulkiflee Wan Ariffin, CEO of Petronas, told Bloomberg that while crude demand is healthy and will probably remain so for a few years, he doesn't think the current high crude prices are sustainable moving forward: "Our budget is somewhat lower than where oil prices are today."
Other experts are worried prices will go even higher, and Majid Jafar, CEO of Crescent Petroleum, echoed a familiar fear when he told audiences at the World Economic Forum (WEF) in Davos, Switzerland that if a major producing nation such as Venezuela suffers a significant production outage, then oil could soar to $80 per barrel.
He added, "And over the next few years, because of the huge under investment we have had over the last few years, the concern is as global growth continues and the balance happens in the market … you could see a shock upwards in oil prices."
A rare source of guarded optimism was provided by Robert Thummel, portfolio manager at Tortoise Capital Advisors, who told Bloomberg television that $55-$65 is a healthy price range for crude: "Oil inventories are coming down, and this is the biggest driver in oil gains in prices.
"We think a stable oil price - which is why we think oil's at $55-$65 - if we can stay at that price...that brings investors back to investing in energy stocks...there's a lot of great things happening across the energy sector."
Arguably the most salient comment from the analytical community so far in 2018 was provided by Vandana Hari, founder of Vanda Insights, who last week remarked that with regards to market performance this year, "tighten your seat belts for choppy trade, volatile prices, absolutely."
