Americas News
Crude Soft For Now But Will Rally Post-2020: Analysts
Every so often, pesky fundamentals trump the sentiment that generally informs crude traders, and such was the case on Wednesday when news of a surprise surge in U.S. stockpiles resulted in West Texas Intermediate dropping 36 cents to $71.84 per barrel; Brent was relatively unaffected, rising 24 cents to $79.81 per barrel after a brief slide.
John Kilduff, founding partner at Again Capital, said, "That big print on the crude number pretty much sunk the rally for now," referring to the Energy Information Agency reporting that U.S. commercial crude inventories surged by 5.8 million barrels in the week through May 18.
By contrast, a weekly poll of analysts by Reuters had been expecting (yet again) a decline based on earlier industry data.
Gasoline stockpile levels also surprised the market by jumping 1.9 million barrels per day (bpd), while distillate inventories fell slightly less than expected; as for U.S. output, it remained largely unchanged at 10.7 million bpd.
Ole Hansen, senior manager for Saxo Bank, contributed to the emerging theme this week that further substantial crude gains seem unlikely by noting, "It does seem like any move above $80 attracts selling interest right now and that could potentially lead us to a period of consolidation, where I think $77.50 or even $75 might be in focus."
Manpreet Gill, head of fixed income, currencies and commodities investment strategy at Standard Chartered Private Bank, holds an even more conservative view, one based entirely on fundamentals: he told CNBC that oil prices on a 12 month basis are likely to be in the $55 to $75 range, and that "average prices do matter for some of the bigger exporters over time, so a short term spike on its own [is] not enough to worry about."
Gill argued that a longer term view (meaning, through 2019) shows much less support on a demand and supply basis for crude than now thanks to "much more supply relative to demand."
But even though the conservative analytical view for crude has been given ample press this week in correlation with generally soft prices, Bloomberg notes that investors are now questioning the popular hypothesis that the growth in U.S. shale production, combined with the adoption of electric vehicles, would keep prices under control.
The news agency quoted Bjarne Schieldrop, chief commodities analyst for SEB, as saying, "We think there is more to go for the longer date contracts; this will send very positive price signals into the whole oil space with higher confidence, optimism and evaluations as a likely consequence."
Bloomberg also pointed out that "Call options that would profit from Brent rising to $130 a barrel by the end of 2020 traded 2,000 times on Friday; that follows a similar amount of $100 contracts for the same period trading over the past two weeks."
It added that a change in marine fuel oil specifications by 2020 is further reinforcing the belief that the oil market will be tighter than expected in the future.
As always, the fractious crude analytical community can be counted on to provide an astronomically diverse range of price forecasts as well as conflicting opinions about the consequences for each of these forecasts.
Earlier this week, the Swiss bank UBS worried that "Now that we are getting closer to $100/bbl, the net impact of oil prices is again becoming a net negative; the global sweet spot - where oil prices may have positively contributed to global growth - seems to be somewhere between $50 bbl and $70 bbl."
