Oil Prices Climb As Traders Resume Their Fears Of Physical Tightness

But several experts forecast upcoming relief at U.S. gas stations: File Image/Pixabay

With sentiment governing crude trading being the closest thing to predictability in a notoriously volatile market, oil prices on Thursday achieved  substantial gains after two days of substantial losses, triggered by traders doing what they're famous for: suddenly flip-flopping and focusing on the tight physical market rather than fears of a demand slowdown.

Quinn Kiley, a portfolio manager at Tortoise Capital Advisors, described trading behaviour by stating, "There is a lot of noise, more so than a lot of news," and he added that, "although we've seen big moves in futures prices, the curve has stayed backwardated."

Jeffrey Halley, who oversees Asia Pacific research for OANDA, added, "This perhaps highlights the disconnect between the speculative market on the futures exchanges, and the reality of the physical market where futures contracts remain heavily in backwardation, signalling immediate oil supplies are as tight as ever."

West Texas Intermediate for August delivery rose $4.20 to settle at $102.73 per barrel, while Brent for September settlement added $3.96 to settle at $104.65 per barrel.

Thursday's trading was spurred in part by Russia ordering a halt to a key Kazakh export terminal that had been expected to load 1.24 million barrels per day (bpd) in July; also, China may enact a $220 billion stimulus that could bolster demand – but also exacerbate supply tightness.

In fact, news of Russian courts ordering  a 30-day stoppage of the Caspian Pipeline Consortium is regarded as a substantial threat to energy stability to the European oil market that is already struggling to contend with unrest in Libya and sharply reduced shipments from other regions. 

Meanwhile in the U.S., with gasoline futures having dropped more than 11 percent this week, consumers are experiencing some relief at the pump: the national price average on Thursday was $4.75 compared to the record $5, but prices are still $1.62 higher than the same time last year.

Patrick De Haan, head of petroleum analysis at GasBuddy, said the national average could drop to between $4 and $4.25 by mid-August, and Andrew Lipow, president of Lipow Oil Associates, forecast the national average dropping to $4.50 "if we can get through the next six weeks without a major hurricane."

But physical tightness remains a predominant concern, and global supplies were perceived to be squeezed tighter on Thursday by Washington tightening sanctions on Iran as it seeks to revive a 2015 nuclear deal and return millions of barrels of oil to the world market.