Americas News
Brent Hits Two-Year High On Strength of Unexpectedly High Drawdowns and Forties Closure
Thursday saw more price gains for crude, with West Texas Intermediate settling up 27 cents to $58.36 per barrel, and Brent rising 35 cents to $64.91 per barrel (a two year high) - and once again, Britain's Forties pipeline in the North Sea, currently shut down for repairs but expected to reopen in January, was said to be the main reason.
Jim Ritterbusch, president of Ritterbusch & Associates, stated in a report that the "Main feature in today's trade thus far appears to be the ability of the complex to absorb in orderly fashion reports that the North Sea Forties pipeline system will be restarted."
Another big reason for trader optimism was a government report released Wednesday showing crude stockpiles plunging last week by the most since the height of North America's summer driving season: "That's still on the minds of market participants," said Rob Haworth, investment strategist at U.S. Bank.
Adding fuel to the bullish fire is U.S. president Donald Trump's triumph in passing his controversial business tax bill this week: Pavel Molchanov, senior VP and equity research analyst at Raymond James & Associates, told CNBC that the bill will benefit U.S. independent refiners because their corporate tax rate of about 35 percent will be cut to 21 percent; however, producers won't be affected because "they don't pay tax in any significant amounts - but they're not any worse off either."
Molchanov added that Thursday's positive market showing was the result of "a commodity trade, not a tax trade."
Matt Smith, head of commodities research for Clipper Data, also expressed optimism about the market, although he didn't discuss the tax bill with CNBC; instead, he said "the market is closer to balance than we have been for many a year"; however, because of that, disruptions or geopolitics are more likely to cause price spikes.
As for the Organizations of the Petroleum Exporting Countries' (OPEC) efforts to achieve rebalance next year, Smith said "Saudi Arabia has really been leading the charge there; we've really seen them cutting flows to the U.S. and that has helped with a [drawdown] of 100 million barrels in terms of inventories.
"But from a global perspective, the forward curve going into backwardation is essentially dis-incentivizing storage, which is what they wanted to happen; the backwardation in the curve is signalling that the market is tightening and so the likelihood of us getting towards their goal by the second half of next year seem pretty much on target."
Earlier this week, Jeffrey Currie, an analyst for Goldman Sachs Group Inc., mused that global inventories will rebalance by mid-2018 causing OPEC to exit from their cuts sooner than expected.
