Crude Flat on Thursday and Will Like Stay in the Mid-$40s: Analysts

by Ship & Bunker News Team
Friday June 9, 2017

Another week of market losses continued on Thursday with West Texas Intermediate dropping 8 cents to $45.64 and Brent declining 15 cents to $47.91, and experts believe the cause is the report from the Energy Information Administration of an unexpected 3.3 million build in U.S. stockpiles at a time when it was thought a drawdown was imminent.

Unfortunately, the overall sentiment is that circumstances will remain unchanged for the near future: Commerzbank said in a note, "Unless data are released that make the latest inventory build appear an anomaly, oil prices are hardly likely to make any lasting recovery."

Even steadfast optimists are telegraphing a change of heart, case in point: Tamas Varga, strategist for PVM Oil Associates, who says that while he has not "given up on the idea that rebalancing is going to start in the second half" of this year, news of rising output from Nigeria and Libya will "probably" compel him to "start changing my mind."

Matt Smith, head of commodity research for ClipperData, agreedĀ  that the crude and product builds as well as the likelihood of continued geopolitical tension in the Middle East have kept prices at disappointingly low levels, and he added another cause for pessimism, namely, the Organization of the Petroleum Exporting Countries (OPEC).

He said, "the OPEC production cut deal isn't necessarily working at the moment because these guys are not cutting back; they want higher prices but they're not necessarily all willing to make those cuts, so that's why we're where we are now."

Smith went on to predict that "Probably we'll go a little bit lower from here, to $44 maybe," but he stressed that "there's limited downside from here" due to demand coming through.

Jim Cramer, host of CNBC's Mad Money, recently speculated that the only thing that could give crude the boost it needs is when deep-water oil wells start to run dry (his argument stems from the fact that these wells can produce 20 times more oil than a single shale prospect and are pumping away, keeping worldwide inventory close to capacity).

If nothing else, the spat between Arab states and Qatar, which caused market declines at the beginning of this week, is seeming to have little effect on commerce or on traders: Reuters reported that exports of Qatari crude are continuing unhindered despite a port ban; however, a re-imposition of the ban by the Abu Dhabi Petroleum Ports Authority may soon cause consternation in some circles.

But wild optimism has not yet been quashed, and Bloomberg notes that "someone bet half a million dollars on prices surging to $80 by year-end: options to buy 10 million barrels of Brent crude for $80 a barrel in December traded Wednesday, far exceeding the next-largest contracts, according to exchange data compiled by Bloomberg.

"Placed in two trades, the transactions were especially large given they were to purchase crude at 66 percent above the day's closing price."

Equally optimistic is Leon Cooperman, CEO of Omega Advisors, who thinks oil prices "could end the year closer to $60" due to the global economy projected to grow 3 percent or more; so assured is he of this that his company is building positions in a variety of energy firms.