Crude Makes Gains as Analysts Blame Decline on "Toxic" Geopolitics

Wednesday December 19, 2018

It's all Trump's fault: that was the implied reason one analyst gave for a "toxic mix" of market forces that triggered one of the biggest crude price falls in years, as prices on Wednesday finally rose on signs of strong product demand.

Brent settled up 98 cents, or 1.7 percent, at $57.24 per barrel, while West Texas Intermediate closed 96 cents higher at $47.20 per barrel, a 2.1 percent gain; both benchmarks benefited from U.S. Energy Information Administration data showing that crude inventories fell by 497,000 barrels in the week to December 14, smaller than the decrease of 2.4 million barrels analysts had expected, but still a sign of demand and the third consecutive decrease.

However, Brent has still lost over 33 percent of its value and WTI has fallen 38 percent since the beginning of October due to aggressive worldwide production, and Jim Ritterbusch, president of Ritterbusch and Associates, assessed Wednesday's market performance by stating in a note, "The complex is piecing together a modest advance so far today, but only one that offsets a minuscule portion of recent losses."

But Stephen Brennock, oil analyst at PVM Oil Associates, stated in a research note published Wednesday that despite chronic market uncertainty, at least the U.S. shale sector will continue to prosper: "The fact is that U.S. tight oil supply is expected to expand by at least 1 million barrels per day in 2019, [and] in doing so it will go a long way to cementing America's newfound position as the world's biggest oil producer.

"For now, when it comes to the U.S. shale patch, the glory days are far from over."

Still, the analytical community overall remains rattled by crude's recent losses, and Martin Fraenkel, president of S&P Global Platts, attempted to make sense of it by stating that U.S. president Donald Trump "calling for lower oil, [and] the easier Iranian sanctions than people expected at the last moment" combined with signs of weaker demand in 2019 has resulted in a "toxic mix as far as the oil market is concerned."

When asked whether Trump deserved recognition for depressing crude futures, Fraenkel replied, "That's a good question…but I think the other good question is: what does Trump want with the oil price?

"Don't forget that on the one hand he doesn't want high gasoline prices - that's not good for the consumers; but, which is the big emerging energy superpower in the world these days? It's the U.S."

While Brennock is bullish over the U.S.'s continued capabilities as an energy producer, he too is disturbed by the extent to which the energy market overall has slumped, and earlier this week he noted that oil, heating oil, and gasoline have all sunk to near or below technical support levels, and that futures contracts "are in a world of pain."