Rising U.S. Production Triggers Crude Price Drop and Predictions that $70 Oil Will Soon Evaporate

Many view crude's range in 2018 as between $60 and $65, with geopolitical tension being a wild card. File Image / Pixabay

A strengthening U.S. dollar and rising U.S. crude production are said to be the factors that caused West Texas Intermediate on Monday to settle down 58 cents to $65.43 per barrel and Brent to drop $1.21 to $69.31 per barrel.

All eyes are especially focused on the U.S. output, as the American Petroleum Institute will post its data Tuesday and the U.S. Energy Information Administration publishes its official figures on Wednesday; for the time being, a Reuters poll reveals that analysts believe crude supplies will rise for the first time in 10 weeks.

The question on many peoples' minds is, with crude supported for so long by a dollar that inevitably would bounce back, what does the price landscape look like for the rest of 2018?

As far as Norbert Ruecker, head of macro and commodity research for Julius Baer, is concerned, only one thing is clear: "We believe that today's oil prices project a too rosy picture."

Claudio Descalzi, CEO of Eni SpA, said while he would love to see $70 oil over the long term, he believes that level will last only for the next "couple of months."

Descalzi explained his reasoning by pointing out that "the fundamentals are leading now," with stockpiles expected to continue shrinking and demand forecast as steady; this, he said, translates into a price average of $60 to $65 this year, and any deviation would be caused by geopolitics (Descalzi cited Nigeria, Libya, and Venezuela as areas of concern).

Still, the prevailing sentiment among experts is still cautiously positive, in part due to surging oil consumption as a result of growth in major economies: Tamas Varga, strategist for PVM Oil Associates, remarked, "The market is bullish [but] one side that could correct significantly could come from the strength in the U.S. dollar."

Meanwhile, JP Morgan is even more overt in its confidence of higher prices: it increased its 2018 average price forecast by $10 per barrel to $70 per barrel for Brent and by $10.70 per barrel for WTI to $65.63: "We expect Brent to touch close to $78 per barrel towards end of Q1 2018 or early Q2 2018."

Another factor to consider in contemplating crude is the massive build up of long positions that has done much to create the current high prices; Mark Keenan, global commodities strategist and head of research for Societe Generale, recently warned that this will cause prices to tumble as much as $8 per barrel in coming weeks.