EMEA News
Stockpile Data Dampens Crude Gains, But CEO Predicts Saudis Will Move Prices Upward
With the American Petroleum Institute reporting an unexpected increase in U.S. crude inventories of 851,000 barrels in the week through June 23, West Texas Intermediate on Tuesday eased back to $43.70 before ending the session at $44.24; overall, crude rose 2 percent due to a weak dollar and the anticipation of inventories dropping in the near future.
Unsurprisingly, given the horrendous fundamentals underscoring the market, analysts didn't read much into Tuesday's showing: Tom Kloza, global head of energy analysis at Oil Price Information Service, remarked, "I don't want to call [Tuesday's price rise] a dead cat bounce, but it's a nominal bounce ... it's certainly nothing that proves that the bear market is over."
Andrew Lebow, senior partner at Commodity Research Group, added, "The downside momentum was clear and today it just got to a level where it's been arrested for the time being"; and Ian Taylor, head of Vitol, speculated that Brent (which on Tuesday settled up 82 cents to $46.65 per barrel) would stay in a range of $40-$55 per barrel for the next few quarters.
Despite so many nations around the world pumping full out, which virtually ensures continued market woes, some experts are still hoping for a brighter near-future, one being Tim Dove, CEO of Pioneer Natural Resources Co.: speaking at the JPMorgan Energy Equity Investor Conference in New York Tuesday, he said, "I personally believe (the oil price) where we are right now is not sustainable.
"It comes in the form of two words, Saudi Arabia: they cannot have a scenario, which is $43 or $44 (per barrel) oil, and sustain their national budgets."
Unfortunately, there is no substance to support Dove's theory other than the vague commitment, repeated frequently, by the Saudis that they will do "whatever it takes" to improve market balance; moreover, Julian Lee, oil strategist at Bloomberg Gadfly, earlier this week challenged the notion of Middle Eastern nations requiring higher prices.
He wrote, "Minister says higher prices are needed to pay for investment in future production capacity, issuing dire warnings of a future supply crunch; they said the same thing to justify prices soaring above $100 a barrel in 2008 [but] it wasn't true then, and it may not be true now."
Dove went on to remark that his company has no intention to stop drilling: "We can pare away and still be profitable even in a $45 (per barrel) environment."
However, he added, "We may just dial back at the margin in that scenario and not be a significant over-spender."
Dove is not alone in his belief that current crude prices are unsustainable: Eirik Waerness, chief economist for Statoil, this week predicted that prices will return to above $60: "Within the next five years you should see a significant tightening of the markets for a period, with surprises up and down."
