Americas News
Best Q3 in 13 Years for Brent as Traders Boost Bets on $100 Oil
Brent on Friday achieved its longest weekly bull run since June 2016 by settling up 13 cents to $57.54 per barrel, while West Texas Intermediate earned its strongest third quarter in 10 years and longest streak of weekly gains since January by settling up 11 cents to $51.67 per barrel.
And in an ironic reversal of opinion, traders are now betting on the possibility of $100 oil in 2018, while the normally fearless Organization of the Petroleum Exporting Countries (OPEC) is considerably less optimistic about crude near-term future.
Of Friday's market performance, Gene McGillian, manager of market research at Tradition Energy, said, "We've seen a strong rally in the past month on the expectation that we are seeing strong demand; with the geopolitical risk in Kurdistan, Brent pushed to a two-year high."
However, he added, "I think the market rally is looking to be a little overdone."
John Kilduff, founding partner for Again Capital, also warned that U.S. producers added six oil rigs this week, expanding activity for the first time in over a month: "They're all the more encouraged by $50 oil."
But these very real concerns don't seem to be discouraging some traders from acting upon December 2018 buy options at $100, considered bargain basement prices according to Reuters; the news agency states, "Open interest in December 2018 $100 call options, which expire next October, has trebled in the space of a week to more than 30,000 lots, on a par with the most active contract among December 2017 options - $60 calls."
Reuters goes on to point out that while this alone does not signal whether investors have bought or sold the contracts, "it does show that the prospect of oil being near $100 in just over a year is not as distant as even some of the more optimistic bulls may have thought."
Taking a distinctly more sober view of the future are Middle East OPEC producers, who think weak demand and excess supply may quash the crude rally.
One senior Gulf oil industry source said "I don't think it's sustainable," citing possible excess supply from U.S. shale producers in the first few months of 2018 triggered by today's higher prices.
A second industry source said the price rally "might be short lived" and that "I think a range of $50-$55 a barrel is good, you don't want to see prices rising to $60 or higher because then it will bring in more shale."
And an OPEC source remarked, "The thing that worries me most is how demand will react in fourth quarter and early first quarter of next year: it may go down significantly."
Kilduff and some OPEC members join the ranks of experts whose warnings of weakening demand due to overproduction are being ignored by enthusiastic traders: earlier this week Francisco Blanch, head of global commodities and derivatives research at Bank of America Merrill Lynch, said of exporters whose budgets depend on oil revenue, "Even at these price levels, they're still bleeding cash, so they want more money and I think the incentive to stay together starts to decrease."
