Crude Up as Worries Shift Yet Again From Waning Demand to a Tightening Market

by Ship & Bunker News Team
Friday August 24, 2018

The crude market was tossed a mild curve ball on Friday in the form of an unexpected resumption of  demand from China - strong enough to compel traders to propel the U.S. benchmark price up 1.3 percent and break a 7 week losing streak - albeit perhaps temporarily.

West Texas Intermediate rose 89 cents, or 1.3 percent and a gain of 4.3 percent for the week, to $68.72 per barrel, while Brent rose $1.02 to $75.75 per barrel, headed for a gain of over 5 percent this week following three consecutive weekly losses.

Stephen Brennock, analyst at PVM Oil Associates, said of Friday's performance, "Both crude markers are on track to end a steady run of weekly declines; this is largely due to a tightening fundamental outlook on the back of looming Iranian supply shortages."

Jeffries said on Friday that, "Third-party reports indicate that Iranian tanker loadings are already down by around 700,000 barrels per day [bpd] in the first half of August relative to July, which if it holds will exceed most expectations.

"We expect that by Q4 the market will be dealing with either under supply, dwindling spare capacity - or both."

John Kilduff, founding partner at Again Capital, took a more cautious view: "In the near term we're still fairly well supplied," he said.

Friday's crude gains were also said to be due to sources telling Reuters that China's Unipec will resume purchases of U.S. crude oil in October, after a two-month halt due to the trade skirmish between both countries.

Another development playing into the mindset that the market will tighten is the prospect that Mexico's new administration may not strike a bilateral agreement over NAFTA with the U.S.

Add to this mix Baker Hughes data revealing that U.S. energy companies cut nine oil drilling rigs this week (the biggest reduction since May 2016) and the stage may be set for a full resumption of marketing tightening worries - and correspondingly higher prices, although hedge funds and other money managers have cut their bullish wagers on U.S. crude futures to the lowest level since mid-June.

The schizophrenic nature of the crude trading market was on full display this week as worries shifted from prospective tightening supplies to fear of slowing demand and then back again to tightening supplies in the space of 48 hours; a typical example was provided by Brennock, whose Friday remarks about "a tightening fundamental outlook" came on the heels of his comments on Thursday that "Fears are rife that economic headwinds stemming from an escalation in the [U.S.-China] trade war will ultimately hurt global oil demand."