US Crude Falls Under $40/bbl, But Bulls See Opportunity

Kelvin Tay, chief Investment officer for Southern APAC at UBS Chief Investment Office Wealth Management in Singapore

Although the bearish forecast of many experts came true on Tuesday when West Texas Intermediate finally closed below the $40 threshold, down 55 cents at $39.51 per barrel, some observers warn not to be distracted by the seasonal factors currently impacting crude prices.

Kelvin Tay, chief Investment officer for Southern APAC at UBS Chief Investment Office Wealth Management in Singapore, told CNBC that while the end of the U.S. driving season and other seasonal factors "may cause prices to drop towards $35-$36 per barrel" towards the end of this year, "we believe the supply and demand imbalance will actually revert back in favour of demand, and we think supply is going to abate itself off."

As WTI tumbled and Brent touched a session high at $43.18 only to fall 34 cents to a $41.80 settlement, Scott Shelton, energy futures broker at ICAP, remarked, "I am bullish here overall but worry about being too early; I also wonder if the market is going to chop around a bit first, like it did in late May to June before dropping after many threw in the towel."

Stuart Ive, a client manager at OM Financial, speculated that, "This seasonal drop in prices does still have room to target $35 before maybe reversing toward the end of the year."

But in terms of a genuine market rebalance, few experts think it will come anytime soon, especially with reports such as that of Baker Hughes Inc. showing active U.S. oil rigs having risen in eight of the nine weeks since oil hit $50, lifting the count by 18 percent.

Typical is the sentiment expressed by Gao Jian, an energy analyst at SCI International, who told The Wall Street Journal, "The world is so oversupplied and the pace of rebalance is so slow that even geopolitical factors, such as the continuing civil strife in Nigeria, are not enough to offset the fall in prices."

While Tay did not suggest that the going isn't rough presently, he also thinks it is a time of opportunity, especially with regards to investing in the U.S. majors, whose earnings, cash flow, and recent share price corrections he says are too good to ignore: "They are very, very attractive right now and I would actually agree that you should be going into these stocks."

Ed Morse, global head of commodities research for Citigroup, also thinks the current tumolt is fleeting: earlier this week he told media that a structural change is underway, and as the supply ramp up of crude ends, the structural transition is "likely to make this dip a lot more temporary than those who are shorting the market now believe it to be."