Americas News
Friday Crude Losses Herald "Choppy Trade, Volatile Prices" for 2018: Analyst
Friday saw crude posting its first weekly loss (of 1 percent) in five weeks, with concerns over U.S. oil production at 9.75 million barrels per day (bpd) as of January 12 outweighing the good news from the International Energy Agency that global stocks have tightened substantially.
West Texas Intermediate settled down 58 cents at $63.37 per barrel, while Brent fell 70 cents to $68.61 per barrel.
The analytical community, which had long predicted a pullback, took the losses in stride, with ANZ Bank pointing out that "an upcoming soft patch in demand and extreme investor positioning does open up the possibility of some short-term weakness."
Phil Flynn, analyst at Price Futures Group, remarked that "The demand side of the equation is keeping us well-heeled," and he expects oil demand to be between 1.8 million bpd to 2 million bpd.
Vandana Hari, founder of Vanda Insights, told CNBC that "structurally, the market is expected to be higher this year" but "a lot of the froth of the market has been due to geopolitical tensions - the fear factor of crude prices - the winter peak demand season of course, and some exuberance on the part of investors."
Insisting that much of this exuberance is "pre-emptive" and prone to pullbacks, Hari went on to state that "Some of this should dissipate, probably bringing Brent closer to $60-$65."
She added, "Tighten your seat belts for choppy trade, volatile prices, absolutely."
The IEA seems to agree: in stating that the market tightening is due to the Organization of the Petroleum Exporting Countries (OPEC) production cutbacks, demand growth, and Venezuelan output reaching 30 year lows of 1.61 million bpd, it also warned that "Explosive growth in the U.S. and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico."
The IEA's forecast of U.S. growth trumping Venezuelan output declines is the exact opposite of what OPEC predicted in its monthly report released earlier this week: the cartel thinks Venezuela's production woes coupled with high compliance of members participating in the output cuts will go a long way to mitigate the negative effects of the U.S. shale boom.
