Crude Prices Boosted By Sentiment as Experts Warn of Iraq Causing "Migrane"

Friday September 6, 2019

If the week in general and Friday specifically is any indication, crude prices enjoyed a modest rebound, albeit based on vague statements and hope rather than any meaningful geopolitical or fundamental developments.

For example, Jerome Powell, chair of the U.S. Federal Reserve, remarked on Friday to a University of Zurich audience that his organization has an obligation "to use our tools to support the economy, and that's what we'll continue to do" - and this caused traders to send Brent upward by 59 cents to $61.54 per barrel, and West Texas Intermediate to climb by 22 cents to settle at $56.52 per barrel.

This despite prices falling earlier in the session when U.S. government data showed America's job growth slowed in August for the seventh month in a row, and Giovanni Staunovo, oil analyst for UBS, theorizing that global oil demand could grow by just 900,000 barrels per day (bpd) in 2019 and 2020.

Arguably, traders may have downplayed Staunovo's forecast in light of Thursday's disclosure that U.S. crude inventories last week fell sharply - nearly double expectations - and for a third consecutive week, a sure indication that demand at least in one bustling corner of the world remains robust.

But despite Friday's gains, analysts were careful to maintain their gloomy near-term outlook: "We're leaving the U.S. driving season," said Robert Yawger, director of energy futures at Mizuho, adding, "It's a very vulnerable position: the biggest worry is concerns about demand growth and that's a function of the [U.S.-China] trade war."

Another potential source of angst could result from Iraq reportedly hitting record production figures in August with an output of 4.88 million bpd: Dave Ernsberger, global head of commodities pricing at S&P Global Platts, said, "The recent increases in Iraqi production turned what was a sort of minor headache for the Organization of the Petroleum Exporting Countries [OPEC] into a fully-blown migraine.

"It makes it more difficult for OPEC to manage the perception that it will balance markets, as demand is currently under pressure."