Crude Prices Rise Again - And So Too Do Analytical Warnings of Volatility

Tuesday September 10, 2019

The worries of the crude analytical community about a declining global economy - and therefore weakening demand - were once gain thrown into serious question on Tuesday, this time by a bullish American Petroleum Institute report that caused traders to send oil prices upwards once more, albeit modestly.

West Texas Intermediate rose 2 cents to $57.87 per barrel after settling at $57.40, and Brent rose 20 cents to $62.79 after settling at $62.38 per barrel.

The gains erased came after the API reported that U.S. crude stockpiles fell 7.23 million barrels, while gasoline supplies declined 4.5 million barrels last week, compared to analytical forecasts of a 3 million barrel contraction.

If confirmed by the government, this will be the fourth weekly crude draw and the largest gasoline contraction since April.

Also said to have given the crude market some hope for future gains was U.S. president Donald Trump announcing on Tuesday that he had fired national security advisor John Bolton - a move some experts think will lead to a longer term softening in U.S. foreign policy towards Iran and Venezuela.

But as was the case on Monday, when analysts seemed determined to emphasize potential bad news despite a flurry of good news causing oil prices to rise, there were warning on Tuesday that pricing volatility is likely in the near future.

That was the message delivered by Dan Yergin, vice chairman of IHS Markit, who told CNBC that a rise in U.S. shale oil output and lackluster global demand will create volatility: "The pipeline bottlenecks are in the process of being resolved, so a lot more oil is going to come onto the market by the end of the year; we expect the U.S. [crude output] to be up to 13 million barrels a day., and at least we're looking right now at fairly weak demand.

"We're in one of the weakest periods since 2008 and we think demand growth this year is under a million barrels per day, so you have that factor at the same time as you have more oil coming to the market - so expect some volatility."

IHS reached this conclusion despite upbeat data: "We see a strong consumer economy in the U.S. but worry about the weakness in the economy," said Yergin, referring to weaker manufacturing numbers.