U.S. Stock Draw Bolsters Crude, But Lipow Says Oil Will Remain "Under Pressure"

Analysts seem divided between demand concerns and supply shortage worries: File Image/Pixabay

U.S. fuel inventories enjoyed another round of draws last week, somewhat assuaging on-going concerns about demand and leading to another round of modest gains for crude prices on Wednesday.

Brent settled up 77 cents at $73.79 per barrel, while West Texas Intermediate settled up 65 cents at $69.65 per barrel.

The gains were said to be capped by a U.S.-brokered truce between Russia and Ukraine on sea and energy targets, with analysts expecting more Russian crude to enter the market; however, Ole Hansen, head of commodities strategy at Saxo Bank, said, “I believe that’s more a gas story than oil given the current OPEC+ quota system.”

Although crude and fuel inventories fell faster than expected last week (crude fell by 3.3 million barrels to 433.6 million barrels), analysts noted that Brent and WTI remained rangebound, and Andrew Lipow, president of Lipow Oil Associates, told media “I think that oil prices are going to continue to remain under pressure…… Brent I think is going to remain stuck in a range between US$70 and $75 a barrel over the next six months, certainly given the dynamics that we’re seeing on the supply side.”

Lipow went on to note that U.S. president Donald Trump’s threat to impose tariffs on buyers of Venezuelan oil as well as tighter sanctions on Iran’s oil exports will be important developments to monitor: “What I do wonder about is whether Venezuela and Iran will discount their oil sufficiently such that Chinese independent refiners are willing to take the risk to circumvent sanctions; because so much money will be on the table due to discounted pricing of oil.”

For their part, Barclays analysts warned that Trump getting tough on Venezuela could result in production shutdowns of up to 400,000 barrels per day (bpd) and a revenue loss of $4.9 billion for that country.

Bloomberg pointed out that oil is still down almost 15 percent from this year’s peak in mid-January, plus “Traders have been snapping up bullish oil options to hedge against the risk that U.S. sanctions will cause prices to spike.”

Meanwhile, Jorge Leon, head of geopolitical analysis at Rystad Energy, speculated that the Organization of the Petroleum Exporting Countries (OPEC) “may be ramping up production in anticipation of potential U.S. sanctions, helping to offset a loss of up to 1.5 million bpd of Iranian exports without destabilizing global oil prices.”