Oil Up Again On Tuesday, But Trading Continues In A "Very Technical Band"

Other analysts warn that there is more downside for oil coming: File Image/Pixabay

A rally in the equity markets caused oil prices on Tuesday to rise for a second straight day, but at least one analyst warned that crude remained vulnerable to a host of circumstances.

Amrita Sen, co-founder of consultant Energy Aspects Ltd., told media that, "Right now liquidity is thin, people are away on holiday, there's more machines than humans; we can continue to trade in this very technical band, but structurally this is a market defined by under investment."

West Texas Intermediate rose $1.62 to settle at $104.22 per barrel, while Brent rose $1.08 to settle at $107.35 per barrel.

The market, along with mainstream media, is still digesting U.S. president Joe Biden's pilgrimage to Saudi Arabia, which was widely reported as a bust with regards to encouraging more oil production: Saudi ministers argued that policy decisions would be made according to market logic, not panic.

Fereidun Fesharaki, chairman of FGE, told Bloomberg television, "The whole concept of going to Saudi Arabia to ask for extra production is sort of impractical," and he added that the kingdom has already been pumping crude at close to its historical peak, with little spare capacity left to tap: "If there's no buffer in the market, the prices will go haywire."

For his part, Marko Papic, chief strategist at Clocktower, thinks there will be a flip in correlation between equities and oil, with more downside for the latter: he also doubted there will be a significant uplift in demand in China when the latest Covid scare is over, and he called the media attention to that country's zero Covid policy a "red herring."

Meanwhile, the U.S. 3:2:1 and gasoline crack spreads - measures of refining profit margins - both fell to their lowest since April, and analysts at Ritterbusch and Associates pointed out that "Crack spreads continuing plunge of past four weeks to narrowest level since late April ... suggest weakening product demand."

In other oil related news on Tuesday, Biden's failure in Saudi Arabia was compounded by a force majeure declared by TC Energy Corp. on some crude flows from Canada through its massive Keystone pipeline; the disruption was caused by a power outage at a pump station in South Dakota -- where temperatures topped more than 100 Fahrenheit.

TC Energy said in a statement that it doesn't know how long the disruptions will persist, and as of Tuesday the pipeline was operating at reduced capacity.