Americas News
Oil Demand is "Absolutely Soaring" and Analysts Foresee More Market Angst Ahead
If nothing else, Hurricane Harvey is causing crude analysts to intensify the rate of their forecasts in what would otherwise be a slow news week: the latest predictions, delivered Tuesday, lean towards the notion that "soaring" demand will boost prices considerably higher than they are now.
Amrita Sen, chief oil analyst at Energy Aspects, noted that the storm came on the heels of a market that has tightened significantly in the last three months: "Particularly if you adjust for global oil demand growth, demand is absolutely soaring right now."
She added that despite massive global inventories, prices will escalate: "[They] should be going up because inventories have been drawing at a phenomenal pace over the past few weeks and months."
Meanwhile, Barclays pointed out that "Harvey has widened the Brent-WTI spread to almost $6, but North Sea maintenance, new disruptions, and higher U.S. output were already driving the spread wider."
Even though many other analysts think the spike in prices will be both short-lived and nothing to compare to historic spikes caused by hurricanes past,other factors may support Sen's theory, case in point: a looming debt default by Venezuela oil giant Petroleos de Venezuela SA, which Helima Croft, global head of commodity strategy at RBC Capital Markets, says would be catastrophic for that republic's all-but collapsed economy and jolt prices far above the $50 per barrel range.
She noted, "The math simply does not work on PDVSA staying solvent" without help from Russia and China, "so we think this default is a clear and present danger."
Croft believes another event that could send prices soaring is if the United States follows through on president Donald Trump's vow to re-impose sanctions on Iran.
But while Croft predicts both events could transpire as early as October, John Kilduff, founding partner of Again Capital, believes his colleague's concerns are overstated, because Russia and China have vested interests in keeping PDVSA afloat, and because the five other nations that negotiated the Iran nuclear deal would probably break with the U.S. and refuse to reimpose sanctions.
Yet more concerns for analysts who only weeks earlier were worried about too much crude choking the market revolve around Libya, due to that country reportedly slashing production by around 350,000 barrels per day as a result of civil unrest and shutdowns; Bloomberg stated that the unrest has caused the country over $160 billion in the past three years, and that its central bank is calling for action to protect "the only source of income for Libyans."
Sailing smoothly through all this angst is Russia, whose oil industry sources told Reuters on Tuesday that despite U.S. sanctions against them, they will will quickly find ways to access foreign finance - as they had done during previous sanctions.
One Russian oil trader said it was "business as usual," while another said he didn't know of any transactions being disrupted as a result of the new measures; yet another source suggested that if worse comes to worst, energy firms will merely sell assets or dip into cash reserves to maintain their business objectives.
Rare is the U.S. analyst who takes a sanguine view of the market these days, but one notable exception this week was Suzanne Minter, director of energy solutions at S&P Global Platts, who urged those fixated on Hurricane Harvey to consider that "87 percent of U.S. capacity is still on line, and that's a really important thing to focus on."
