Crude Edges Higher, but Gartman Says Oil Will Be "Worthless" Over the Next 20 to 40 Years

by Ship & Bunker News Team
Tuesday June 27, 2017

With crude creeping higher following prices sliding to seven month lows last week, Monday's trading session was described by John Kilduff, founding partner at Again Capital, as "bottom fishing at this point" - and once more, another expert suggested that there's no justification for the severity of bearish attitude currently on display.

Brent rose by 31 cents to $45.85 per barrel on Monday, while West Texas settled up 37 cents at $43.38 per barrel, causing Kilduff to remark, "After how much we've fallen, prices are attractive here as a result, so it's not surprising that we're getting some buying, just on a valuation perspective."

To which Craig Erlam, senior market analyst for OANDA, added, "I'm seeing little to convince me that this is anything other than a dead cat bounce; a break above $44.50 in WTI and $47 in Brent may suggest were seeing a broader correction, something that at this stage is looking unlikely."

But as stale as market prospects may seem, Robert Rennie, head of market strategy at Westpac Global, thinks oil markets are too bearish: he told Bloomberg, "there's been a lot of negative news thrown at crude markets in the past couple of weeks, but I do think we're probably just seeing the tail end of a very aggressive move lower."

He went on to note that one reason are signs of U.S. shale production starting to slow, "particularly in the past couple of weeks" and that an inventory drop began sooner than expected.

Another factor is that even with higher production from the U.S. as well as Nigeria, Libya, and other countries, "we're down about 1.6 million barrels per day over the last six month; sure, that's short the 1.8 [million barrels that the Organization of the Petroleum Exporting Countries had hoped for], but I think that's a material improvement and I do think OPEC is getting its way.

"Therefore, I tend to think $40 to $42 from a West Texas Intermediate point of view should be the lower end of the current range."

In a similar vein, Dennis Gartman, editor and founder of The Gartman Letter, told CNBC that "I bet over the next two weeks, you get a bounce: that wouldn't surprise me, since we have been down far more than we probably should have given the fundamentals at this point."

However, he warned, "I'll tell you one thing: in the long run, crude oil is heading egregiously lower."

Gartman revealed the reasoning behind his sentiment as he noted the ascension of Saudi Arabia's new crown prince, Mohammed bin Salman: "He understands that crude oil, over the course of the next 20 to 40 years, is going to be a worthless commodity; it will be supplanted by something else."

But so far, no commodity has come close to matching the affordability and efficiency of crude, meaning the market has a long way to go before it can abandon its focus on either benchmark; in the meantime, many analysts say the market is fundamentally changing in another way, specifically: U.S. shale as the dominant force undercutting the power once wielded by OPEC.

Edward Bell, oil analyst at Emirates NBD PJSC, recently remarked, "There appears to be no topside limit to production in the U.S., or at least it hasn't been discovered yet."