Analysts Say Brent Breaking $70/bbl Is The Limit - But Producers And Investors Remain Bullish

Thursday January 11, 2018

Much to the consternation of analysts who insist the fundamentals are still not strong enough to justify the market gains, Brent on Thursday morning broke through the $70 per barrel level - its highest level since 2014 - before dropping to a still-impressive $69.26; West Texas Intermediate settled up 26 cents to $63.80 after earlier breaking through $64 for the first time in 2014.

Earlier reports that U.S. crude inventories had fallen by nearly 5 million barrels in the latest week was again credited for the gains, but apart from geopolitical tensions that could cause supply disruptions in Iran or the worsening economic situation in Venezuela, John Kilduff, founding partner at Again Capital, thinks "it starts to get difficult for us to get much higher from here; I think we're probably in the process of topping out as we speak."

Tom Kloza, founder of Oil Price Information Service, likened the latest gains to a runaway train that will soon be derailed: "I think it's pure momentum, and when the Commodity Futures Trading Commission numbers come out ... I think we'll see an awful lot of money - financial money - is behind this rally."

But those involved directly in oil and gas production seem considerably more optimistic about what will happen next: in an annual survey of 7,000 such energy professionals conducted by Reuters, they believe prices will average around $60 to $70 per barrel through the end of the decade and then widening to $60-$80.

The survey respondents also seemingly rejected the fear in the analytical community that prices will spike towards the end of the decade due to the lack of investment in new supply: only 4 percent of them expect prices to return to average $100 or more by 2020.

Also bullish are investors: according to Barclays, assets invested in commodity-linked securities climbed to a four-year high of $311 billion after increasing 1 percent in December; net inflows of $3.4 billion outweighed losses of $300 million last month.

Warren Russell, analyst for Barclays, said, "Rising manufacturing confidence in many regions continues to spur commodity demand growth; strong economic activity is set to continue in 2018."

Earlier this week, Citigroup echoed Kilduff's sentiment about geopolitical tension by predicting that U.S. president Donald Trump is the most likely of all candidates to cause turmoil in 2018, disrupting supplies in other countries, and propelling crude to the $80 mark.