Americas News
Crude Stabilizes as Geopolitical Tensions Diffuse and IEA Declares Markets "Much More Balanced"
Crude prices on Tuesday steadied in accordance to dissipating worry about Middle East strife and more rumours in advance of a Friday producers meeting that the Organization of the Petroleum Exporting Countries (OPEC) will extend its production cuts yet again - however, experts warn that Iran and Venezuela bear watching and could send prices skyward once more.
West Texas Intermediate dropped $0.03 to $66.19 per barrel, with a total volume traded about 25 percent above the 100-day average; Brent rose $0.21 to $71.57 per barrel.
Gene McGillian, market research manager at Tradition Energy, remarked, "Some of the geopolitical risk we priced in last week because of the concerns about what was happening in the Middle East seems to be slowly ebbing out of the market," and also "you're also getting chatter that the OPEC members are considering extending the cuts - you should start to see some support soon."
McGillian was referring to comments from Kuwait that OPEC and allied producers will discuss prolonging their deal to reduce output into 2019.
Joel Hancock, commodities strategist at Natixis, added, "The rally upwards was purely on geopolitical risk and if now we haven't had any further stimulus, we're seeing prices slip off a bit" - but Reuters pointed out that uncertainty over the Iran nuclear deal will "continue to support prices through May 12, the deadline that U.S. President Donald Trump gave to Congress and European allies to `fix' the deal."
Still, bullish sentiment may be capped by a suspected supply increase in Cushing, Oklahoma, the delivery point for U.S. crude futures: Jim Ritterbusch, president of Ritterbusch and Associates, remarked, "We've seen that front May-June spread in WTI swing back into contango today, and that's somewhat of a bearish...it implies a continued up trend in Cushing crude supply."
He and other analysts are awaiting official data on the matter.
Meanwhile, Fatih Birol, executive director at the International Energy Agency, appeared to be in a somewhat positive mood with regards to the crude market overall: he told Bloomberg television that, "I think we are seeing that the oil stocks, which were a great overhang on the oil markets, are now being eroded; we're seeing a market that is much more balanced than in previous years and quarters, and the price levels we see today are a reflection of that."
When asked what needs to happen for oil to reach $80, Birol replied, "If the prices increase significantly higher than what we have now, it may have some consequences," such as increased U.S. shale production and deep water production of Brazil and Mexico, "so we should be careful what we're wishing for."
Birol added that the recent increase in oil prices have been enforced by events in the Middle East and Venezuela; however, he conceded that U.S. shale "shapes the markets" and that if a second wave of massive production comes to pass as the IEA believes, there will be a downward pressure on prices.
Earlier this week, Barclays offered a compelling argument - grounded in the troubling fundamentals of ever-increasing crude production by many nations - that oil prices will collapse later this year and stay low into 2019.
