Americas News
Crude Climbs In Reaction to Stock Draw, But Continued Doldrums - and Maybe Even Sub-$40 Oil - Lie Ahead
A bigger than anticipated 7.6 million barrel decline in U.S. crude inventories caused West Texas Intermediate on Wednesday to rise 45 cents to $45.49 per barrel and Brent to climb 22 cents to $47.74 - but various sources caution that this does not herald any substantial price hike, and that indeed crude could still plummet below the $40 mark.
Energy Information Agency data showed that in addition to crude inventories dropping far lower last week compared to predictions of 2.9 million barrels, gasoline stocks fell by 1.6 million barrels (compared to a 1.1 million forecast).
However, while this buoyed traders, experts such as John Kilduff, founding partner at Again Capital, pointed out that "Part of the drawdown was seasonal; that's not going to last much longer."
A similarly-minded Bob Dudley, chief executive officer of BP, reiterated the familiar criticism that markets must stop taking into account data on a weekly basis, and that the harsh reality is inventory levels globally "are so high," discouraging him from any position other than crude prices remaining more or less where they are now.
Goldman Sachs is more outspoken its its forecast for the near term: the bank stated on Wednesday that prices could drop below $40 if the Organization of the Petroleum Exporting Countries (OPEC) doesn't deepen in productions cuts.
It wrote, "Given that the market is now out of patience for large stock draws and increasingly concerned about next year's balances, we believe that price upside will need to be front-end driven, coming from observable near-term physical tightness and signs of a U.S. shale activity slowdown on a sustained basis in coming weeks."
But in terms of OPEC's participation in tackling the global glut, Bloomberg is of the opinion (shared by many) that even if it imposed caps on full-bore producers Libya and Nigeria, it still wouldn't be enough to rebalance the market substantially.
As for the longer term, a spike in oil prices by 2020 is the likely outcome of currently evolving market conditions, according to Mark Richard, senior vice president for global business development at Halliburton Co.
He remarked, "Sooner or later, the market is going to catch up [and] you'll see some kind of spike in the price of oil; maybe somewhere around 2020-2021, but it's got to catch up sooner or later."
Another factor that may impact crude is geopolitical risk, and earlier this week analysts said that issues such as the Saudi Arabia conflict with Qatar, increasing strife in Venezuela, and Chinese production collapsing could cause a sudden tightening and oil to skyrocket to $80.
