U.S. Crude Posts 7th Straight Weekly Loss With More Volatility Expected

by Ship & Bunker News Team
Friday August 17, 2018

Yet another unsurprising end of the week for crude came on Friday, when West Texas Intermediate posted its seventh consecutive weekly loss and Brent its third weekly loss, due to oversupply worries and the prospect of slowing demand.

WTI settled up 45 cents to $65.91 per barrel, not enough to avoid a 2.5 percent decline for the week or marking its longest losing streak in three years.

Brent rose 52 cents to $71.95 per barrel, but again, this wasn't enough to avoid a weekly loss of slightly over 1 percent.

As has been the case for the past several weeks, the benchmarks were said to have been negatively affected by the contention that global economies will suffer due to the U.S./China trade war; additionally, U.S. government data this week showed a large build up in crude inventories, with production also increasing.

In less than the space of a month, the analytical community has for the main shifted from obsessing over the potential of a tightening market due to high demand and lack of output from countries such as Venezuela, to fearing that another global glut could take place.

Indeed, Jefferies reported a "lack of demand" for crude oil and refined products from emerging markets, while DBS bank stated that Chinese data showed a "steady decline" in activity and that "the economy is facing added headwinds due to rising trade tensions."

But a few experts covered all bets on Friday by forecasting that crude prices could easily swing one way or another due to geopolitical tensions: that was the message delivered by Eelco Hoekstra, CEO of Vopak, when he told CNBC, "With new [Iran] sanctions coming into play and also the IMO 2020, we see there is more volatility and therefore more opportunities to trade. So, we see our customers taking, slowly but surely, positions for that to happen" - the IMO reference being the International Maritime Organization, which will enforce new emissions standards designed to significantly curb pollution produced by the world's ships.

Tom Kloza, co-founder of the Oil Price Information Service, also sought to have it both ways by noting, "I think that if we had an oil (volatility index) it would be incredibly, incredibly volatile," and he warned that crude futures are so volatile that a slump to $50 or a spike above $100 per barrel could not be completely ruled out over the same time period.

But crude bulls still have reasons to feel good, insisted Bill Baruch, president of Blue Line Futures, who reminded CNBC viewers that crude is still trading near multiyear highs, with a gain of 9 percent year to date and 40 percent in the last 12 months.

He went on to forecast that space global capacity is likely to grow tighter, helping to provide support from $62.50 to $64.50 per barrel and oil rallying back up to between $70 and $80 per barrel later this year.

Last week, Jim Ritterbusch, president of Ritterbusch and Associates, summarized how difficult crude forecasting has become when he said, "The energy complex is being increasingly jostled by fresh daily headlines that don't necessarily have much effect on current supply or demand on a short term basis but could dramatically affect oil balances when looking down the road just a few months."