Rig Count Fears Beat Bullish Sentiment and Cause More Crude Losses

Monday February 11, 2019

With arguably trivial matters influencing crude traders these days, it was perhaps not surprising that news of U.S. drillers adding 7 oil rigs in the week to February 8 caused crude prices on Monday to dip somewhat: West Texas Intermediate declined 28 cents to $52.44 per barrel, while Brent dropped 10 cents to $62 per barrel.

Equally unsurprising was continued price support in the form of Venezuela, and ANZ bank noted on Monday with regards to that country's state-owned oil firm, "Reports are emerging that PDVSA is scrambling to secure new markets for its crude, after the U.S. placed additional sanctions on the country."

Monday also saw the inevitable analytical weighing in of where crude will go in 2019: David Lennox, resource analyst at Fat Prophets, told CNBC television that "We think that Brent will probably trade by year end somewhere between $74 and $84," a range his firm has settled on because the Organization of the Petroleum Exporting Countries (OPEC) "don't want to see the oil price anywhere near $50 and they certainly don't want to see it too much above $80."

Unlike many of his colleagues, Lennox also expressed a bullishness for oil demand, stating that it will likely come in between 99 to 99.5 million barrels per day (bpd). 

For the record, Tarek El-Molla, petroleum minister for Egypt, told CNBC that a fair price for a barrel of oil - which OPEC and its non-OPEC partners are close to achieving it via their production cutback deal - "is in the range between $60 and $70 a barrel … somewhere in this bracket of price.

"If prices of crude increase significantly we would start to see inflation and an exaggeration in the slowdown in consumption from the other side; if we see prices go down below a certain price, then we will see a slowdown in investments."

While the comments from Lennox and El-Molla may lead casual observers to assume there is a certain serene long-term outlook growing within the analytical community, more compelling is the notion that crude experts - and traders - will continue to be fixated by short-term issues and their 24/7 coverage by media.

In this regard, Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA, remarked, "The one thing that hasn't improved and is now up for speculation is the U.S.-China trade talks: that's going to be the rudder of global markets until we have a resolution."