Crude Achieves Strong Weekly Gains as Analysts Predict Promising Times Ahead for Oil

The experts also seem to be positive about a U.S./China trade deal:File Image/PixaBay

The waning angst over U.S./China relations, the prospect of the Organization of the Petroleum Exporting Countries (OPEC) deepening its production cuts, falling U.S. crude stocks, and other factors contributed to crude prices on Friday achieving strong weekly gains of over 5 percent.

However, many analysts are undeterred in their insistence that rough market sailing lies ahead.

West Texas Intermediate settled 43 cents higher at $56.66 per barrel, while Brent ended 35 cents higher at $62.02 per barrel -  weekly gains of more than 4 percent and 5 percent respectively.

Perhaps the most significant news on Friday motivating traders was Washington officials declaring that they and their Chinese counterparts were close to finalizing the first part of a trade deal after months of a tariff war; support in the form of OPEC and the American inventory declines were holdovers of news reported earlier in the week.

Phil Flynn, senior energy analyst at Price Futures Group, said of Friday's trading session, "We're holding our ground after a pretty good up week with the surprise draw in inventories."

John Kilduff, founding partner at Again Capital, added, "Some of the vibes out of the U.S.-China talks are positive again and that's certainly what's fuelling the stock market, so oil is benefiting from it."

But analysis of the crude market wouldn't be complete without a pessimistic voice, and on Friday that was supplied by Jeffrey Halley, senior market analyst at OANDA, who remarked, "Slowing global activity will see demand drop, so the reality is that oil rallies will be limited."

The comment comes on the heels of economists in a Reuters poll earlier this week arguing that a steeper decline in global economic growth is more likely than a synchronized recovery.

This is largely the position that has been taken of late by the crude analytical community as a whole, but while Kilduff and Flynn on Friday bucked the trend by expressing optimism in the short term,  John Petrides, portfolio manager at Tocqueville Asset Management, told media on Friday that he thinks the long-term scenario for the energy sector overall is better than many experts assume.

Although energy is currently the worst performing sector in the S&P, having gained only about 3 percent for the year, Petrides theorized it could be the big winner over the next year: "I think, over the next 12 months, the energy sector could be one of the better-performing or outperforming in the S&P; I mean, it's less than 5 percent of the overall index, which is unbelievable to think where we were 10 years ago.

He added that he believe is founded on the assumption that the U.S. makes a deal with China, and he went on to note that "You're seeing production slow down, which should hopefully tighten supply-and-demand dynamic, and post the 2016 collapse in oil prices, most of these energy companies have become really good capital allocators focusing on repairing the balance sheet and returning cash to shareholders.

"So I think at current value, the energy sector is under-owned, and I think there's a lot of catalysts to drive to the upside."