Americas News
US Crude Hitting 3-year High Triggers More Worry Over Market Sustainability
More worry over the future of the crude market was triggered on Friday with prices hitting fresh three-year highs - and reports of U.S. drillers going all-out in putting new rigs into production.
West Texas Intermediate settled up 63 cents to $66.14 per barrel, the best settle since December 4, 2014; Brent rose 29 cents to $70.71 per barrel.
Again, the weak U.S, dollar was credited for supporting the prices, and this prompted Brian LaRose, technical analyst at United-ICAP, to note that "One has to question if this rally is sustainable; downside protection is going to be warranted."
Georgi Slavov, head of research at Marex Spectron, warned of temporarily reduced demand due to refiners shutting down after winter for maintenance: "Demand is starting to weaken."
Of course, not everyone viewed Friday's gains - which contributed to this month being the best January for crude in 12 years - as cause for concern: noting that traders are reacting to "U.S. dollar movements," Eric Nuttall, a portfolio manager with Ninepoint Partners LP, remarked, "I'm encouraged that oil is better reflecting underlying fundamentals and an under-supplied market relative to last year, where it seemed to ignore those improving fundamentals for much of the year."
Gene McGillian, market research manager at Tradition Energy, added, "We continue to get direction from the dollar; the long-term effect of production cuts and increased demand are still the main drivers of the rebalance of the market and higher prices."
Capping off these sentiments was Pavel Molchanov, energy research analyst at Raymond James, who said, "A lot of people looking at the oil market focus 90 percent of their time on supply.
"Demand tends to be overlooked sometimes and it's actually worth emphasizing how strong oil demand has been."
But for those who view U.S. shale as the mechanism that could well ruin global efforts to achieve a meaningful market balance (which many experts say will happen in the second half of this year), market headwinds do seem to building: Baker Hughes on Friday announced that energy companies added 12 oil rigs this week, the biggest weekly increase since March; also, the oil rig count increased to 759 in the week to January 26, which is the highest level since September.
More than half of those rigs are located in the Permian basin in west Texas and eastern New Mexico, making this the biggest one-week increase in rigs in the Permian since November 2013.
Earlier this week, Paul Kuklinski, founder of Boston Energy Research, told Ship and Bunker that a 34 percent increase in crude prices since August is "too much too soon" and is "likely to stimulate a strong production response, with a typical lag, sufficient to keep oil inventories elevated above the 5 year average for all of 2018."
