Americas News
"Summer Doldrums" Impact Crude Prices, but a Rally to $50 Still Possible: Analyst
The Organization of the Petroleum Exporting Countries (OPEC) and its perceived failure to reduce global crude surplus via its cutback initiative once again influenced traders, who on Monday caused West Texas Intermediate to slip 52 cents to $46.02 per barrel and Brent to drop 47 cents to $48.44 per barrel.
Gene McGillian, manager of market research at Tradition Energy, said, "The idea of higher production levels, particularly in the U.S., Libya, and Nigeria ... I think that seems to have been priced in for the moment.
"I am skeptical: I think the market has bounced, but it's having trouble finding traction to move higher probably because some the drop off in inventories are likely due to gasoline demand picking up."
Still, there was room on Monday for cautious optimism to be expressed: Bob Parker, member of the investment committee at Quilvest Investment Management, told Bloomberg, that in the wake of six weeks of noteworthy market declines, "my own view is that over the next two to three months we'll probably see a flaw on WTI at around $45 and I think there's a high probability we could see a rally back to $50."
He explained that there's a pickup in demand partly as a result of "the good GDP data" out of Europe and Asia, and that excess production from OPEC will likely be minor; however, he dismissed out of hand any notion of crude recovering to the level of $60.
Joe Cusick, financial advisor for The Cusick Group, agrees that better than expected GDP data from Asia is helping crude, and he also believes the weak U.S. dollar "has really helped the commodity space and specifically oil.
But he added, "I still think the sweet spot in oil is going to be the $45-$44 level" and that level could be tested "because we have so many rig counts."
As for Brent, Cusick said, "watch the Libyan and Nigerian production numbers," adding that they are consistently higher than expected and could impact any gains OPEC is hoping to achieve during its extended production cutback initiative.
But strictly in terms of market performance, Sukrit Vijayakar, director of Trifecta, warned that encouraging numbers won't necessarily translate into a rally: "These factors (China data and slowing U.S. drilling) would act more to put a bottom in place for oil prices rather than spurring growth to new highs."
Michael Lynch, president of Strategic Energy & Economic Research, sided with Vijayakar; he told Bloomberg, "The Chinese economic data is pretty good, but not great.
"We are in the summer doldrums: there hasn't been any real strong political news or strong fundamentals to drive us either way."
Noted skeptic John Kilduff, founding partner of Again Capital, last week dismissed any notion that prices are about to stabilize, noting that one driver of recent modest gains - reports of stockpile drawdowns - "is seasonal; that's not going to last much longer."
