Crude Firms as UBS Warns Market Is Approaching "Uncharted Territory"

analysts on Tuesday offered the familiar forecast of $100 oil by year end. File Image / Pixabay

The steadily rising tensions between the U.S. and Saudi Arabia over the disappearance of dissident journalist Jamal Khashoggi and the possibility of the Saudis reducing crude output in retaliation - which in turn would exacerbate a market already struggling to cope with shortfall from Iran - caused crude prices on Tuesday to rise again, albeit modestly.

Brent rose 64 cents per barrel to $81.42, while West Texas Intermediate rose 14 cents to settle at $71.92.

Lending support was industry sources suggesting that in the first two weeks of October Iran exported close to 1.5 million barrels per day (bpd) of crude to countries including India, China, and Turkey, a sharp drop from 2.5 million bpd in April; however, this was offset somewhat by recent stock builds at Cushing, Oklahoma, where inventories have risen for three straight weeks.

The motivating factors of Tuesday's trading activity demonstrated yet again that nobody can decide whether the crude market moving forward will be well or even over-supplied, or instead hurtling towards a massive tightening - and the usual input from the analytical community on Tuesday did nothing to give clarity.

Wayne Gordon, executive director for commodities and FX at UBS Global Wealth Management, told CNBC that the market is moving into unchartered territory because any oil production from Saudi Arabia above 11 million bpd (which is widely viewed as necessary to offset Iranian losses due to the U.S. sanctions) is "largely untested," even though he believes capacity globally "will start to ramp up next year."

He added that altogether, "the market is spent" and "we're going into a deficit situation where spare capacity is low"; he concluded that oil prices will "be above $90" if any sizeable outages occur in the near future.

As dramatic as Gordon's proclamation seemed, it was no match for those foreseeing crude in the triple digits such as Patrick Spencer, vice chairman of equities at Baird, who told Bloomberg television that, "we still think we can see oil at $100 before the year is out" due to oil stocks being "under owned, under-believed."

For his part, Neil Dwane, global strategist at Allianz Global Investors, hopes $100 per barrel crude doesn't become a reality: he told Bloomberg, "we're already seeing evidence from Asia that $80 oil is starting to hurt India and Indonesia, so $100 oil with a strong dollar would definitely affect the global economy, so I don't think from an investment perspective we want to wish for $100 oil or more, because I think the world can't deal with it."

Yet again, the experts tended to downplay the influence of U.S. shale producers on the global market; it fell upon Brian Hook, the U.S. special envoy to Iran, to earlier this week assure the energy community that a tightening likely wouldn't occur, and that "our [U.S.] crude oil production increased by 1.65 million barrels in August compared to one year ago, and that is expected to continue rising by as much as 1 million bpd within the next year."