Americas News
Crude Flat as Rising Tensions Over North Korea Balance Slowing U.S. Shale
Demand for increased refining operations in the wake of Hurricane Harvey and rising tension between North Korea, the U.S., and other countries had an impact on the crude market Monday, with West Texas Intermediate rising just 2 cents to $49.91 (but still close to last week's near four month high of $50.50), and Brent dropping 12 cents to $55.50 per barrel (again, still near an almost five month high of $55.99 of last week).
Another factor supporting crude is on-going optimism about demand growth and the weaker U.S. dollar: ANZ bank said in a note, "Demand forecasts from OPEC [the Organization of the Petroleum Exporting Countries] and IEA [the International Energy Agency]... continued to improve sentiment in the market; refineries are also reporting a much better recovery from the recent hurricanes."
But another perspective of Monday's trading is that oil failed to sustain a rally above $50 per barrel; for a third straight session, partly because producers are coming to the futures market whenever WTI prices approach $50 to lock in profits.
Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA, said $50 "is pretty much the magic number which oil producers come in and hedge;
Indeed, circumstances practically dictate that crude will remain range bound in the near-term: Bill O'Grady, chief market strategist at Confluence Investment Management, predicted that "We're going to see some recovery in Texas but we're also going to see some reductions in refining activity in the rest of the country; demand for crude will probably stay pretty weak."
U.S. shale production is also set to slow somewhat, with the Energy Information Administration calculating that output for October will grow by 79,000 barrels per day (bpd) due to falling rig counts - the first time in seven months the administration's growth forecast came in below 100,000 bpd.
Meanwhile, it's anyone's guess what the outcome will be of the geopolitical tension caused by North Korea, but further sanctions imposed by the UN Security Council in the wake of the outlaw nation conducting yet another ballistic missile test caused a foreign ministry spokesman for that country to call them "the most vicious, unethical and inhumane act of hostility to physically exterminate the people of [North Korea], let alone its system and government."
Russia, which has opposed sanctions against North Korea and repeatedly rejected feel-good market projections coming from the west, recently suggested that oil prices may fall as low as $40 per barrel next year.
