Crude Gains Tuesday, Analysts Believe Market Has Now Hit Bottom

by Ship & Bunker News Team
Tuesday December 11, 2018

The temporary circumstances of a slightly weaker U.S. dollar and a shutdown in production in Libya caused crude prices to climb modestly on Tuesday, with Brent 23 cents higher at $60.20 per barrel, and West Texas Intermediate settling up 65 cents to $51.65 per barrel.

A force majeure on exports from Libya's El Sharara oilfield will result in a production loss of 315,000 barrels per day (bpd), and an additional loss of 73,000 bpd at the El Feel oilfield, according to the National Oil Company.

However, despite Tuesday's momentary respite from the price free fall that has characterized crude trading in recent weeks, Tamas Varga, analyst at PVM Oil Associates, warned that "The dollar is a bit weaker, but other than that, I don't see any reason why this market should rally right now; it fell quite hard yesterday, so it might correct higher."

Other analysts were buoyed enough to suggest that maybe prices are reaching rock bottom and there's nowhere left to go but up: Sean Fenton, portfolio manager at Tribeca Investment Partners, told Bloomberg television, "We're a little bit more optimistic on oil," and he was also cautiously optimistic that the production cutbacks agreed to last week by the Organization of the Petroleum Exporting Countries (OPEC) would, if complied with, balance the market moving forward.

He added, "The market's working hard to put a bottom in there in the low $50s...we see capacity for the market to probably move up $10 through the first half of next year and provide a bit of value back into some of those energy equities as well."

But many experts are not yet convinced that the supply cut will prevent a repeat of 2014, when supply overtook demand and caused a global glut: Stephen Innes, head of trading for Asia-Pacific at Oanda, said, "There remains a lot of uncertainty if the production cut is thick enough to make a significant dent in global supply."

The usual conflicting forecasts for crude are coming into play for 2019 as this year draws to a close: Capital Economics sees an average of $63 per barrel over the course of 2019, but MUFG predicts a "sharp rebound" in coming months, and Societe Generale forecasts Brent at $73; and for its part, Bank of America Merrill Lynch expects Brent crude to regain its recent losses in 2019 and settle at $70.

The one thing that won't happen in the New Year, the experts agree, is crude reaching the triple digits: Hootan Yazhari, head of global frontier markets equity research at Bank of America Merrill Lynch, remarked, "There are a number of factors to suggest the [OPEC] cuts were deep enough, that we will start to see a resumption to the upside in oil prices - but certainly we don't see oil prices moving up to the $90, $100 level that maybe we could've seen.

"We think that the only certainty is uncertainty at the moment."

Earlier this week, John Kemp, crude market analyst for Reuters, reminded readers that while OPEC may help avert a large buildup in excess oil inventories, it can do nothing about the "deteriorating economic outlook", which he said implies the need to a period of lower oil prices.