More Losses for Crude on Friday Based on Glut Fears, but Saudis Insist Drawdowns Will Soon Escalate

by Ship & Bunker News Team
Friday June 16, 2017

Friday saw a record that presumably few sellers wanted: the longest run of weekly losses since 2015, with West Texas Intermediate settling up 28 cents at $44.74 per barrel and Brent rising 45 cents to settle at $47.37 per barrel - not enough to avoid prices slumping 1.6 percent this week and achieving the lowest close in seven months, Bloomberg noted

Bill O'Grady, chief market strategist at Confluence Investment Management, said, "Inventory levels remain stubbornly high; the reality is, the things that have caused this trading range remain in place.

"Nothing's changed."

Michael Dei-Michei, head of research at JBC Energy GmbH, added that there's no bullish twist to be had: "Implied crude production seems to have moved upwards at a rather rapid pace, U.S. gasoline demand has taken a turn to the downside just as the summer driving season starts, and total U.S. oil stocks have not drawn for two weeks."

Friday also marks the end of a particularly troubling week for those focused on fundamentals: in addition to U.S. Energy Information Administration data showing growing gasoline stocks and weak demand, experts warned that Iraq is well within its capacity to pump all out at 5 million barrels per day; plus, Nigeria and Libya posted a rise in exports.

About the only good news to be had - depending on one's political affiliations - is that the pace of new U.S. drilling rigs in operation have slowed, even though the number rose by 6 to 747 in the week to June 16, according to Baker Hughes data; lower oil prices will presumably test drillers in the immediate future.

More good news - but this time entirely dependent on how much trust one has in opinion rather than hard numbers - came in the form of Khalid al-Falih, energy minister for Saudi Arabia.

He told reporters in Kazakh that a drawdown in crude inventories will accelerate in the next three to four months; earlier, the minister stated that there is no need to review the oil output cut agreement between the Organization of the Petroleum Exporting Countries and allies led by Russia - at least for now.

The optimistic Falih also declared, "The U.S. market will always be key [to us], in the long term we will continue and grow exports to the Unites States, today the United States is well supplied."

The circumstances influencing this week's trading are so dismal that Tariq Zahir, managing member at Tyche Capital Advisors, was forced to reiterate a sentiment shared by many analysts: "I definitely think we're in a new trading range; unless you get some supply disruption, I think it's going to be lower for longer."