Crude Hit 3-Week High, But Warnings Over Sub $50/bbl Persist

Monday proved that everything's rosy once again in the tumultuous crude market, with assuring remarks made about the Organization of the Petroleum Exporting Countries (OPEC) production cuts causing traders to propel West Texas Intermediate up 36 cents to $63.91 per barrel, its best closing level in three weeks.

Brent rose 17 cents to $67.48 per barrel.

The gains were almost exclusively the result of Khalid al-Falih, energy minister for Saudi Arabia, telling media over the weekend that his kingdom's crude production in January-March would be well below output limits: less than 7 million barrels per day.

He also speculated that the crude market recovery is so successful perhaps OPEC could relax its cutbacks in 2019: "A study is taking place and once we know exactly what balancing the market will entail, we will announce what is the next step, [which] may be easing of the production constraints."

He added, "My estimation is that it will happen sometime in 2019. But we don't know when and we don't know how."

Those concerned with fundamentals were less enthused with the prospect of OPEC ending its cuts: Bob Yawger, director of energy futures at Mizuho, said such a scenario may even be a bearish development longer-term.

As for prices, Joel Hancock, oil analyst for Natixis, speculated that he expects to see a range of $60 to $70 this year based on his view that "demand will be strong enough - but we don't see a big breakout."

Michael O'Rourke, chief market strategist at Jones Trading, believes oil prices could easily fall below $50: he explained to Bloomberg television, "U.S. production has hit new record highs, that's the big story here," and he went on to say that the production cuts made by the (OPEC) could be obliterated by the Americans, leading to a new glut: "that's what investors are worried about moving forward."

O'Rourke concluded, "I would expect [crude] to move down below $60 again, and then expect the commodity range bound and trade like a typical commodity: when it looks like supplies are increased you're going to see a commodity drop, and when it comes back into check you'll see it rise back again."

These conservative outlooks would presumably trouble Suhail al-Mazrouei, energy minister for the United Arab Emirates: last week he suggested that the current $60-$65 range wasn't good enough to encourage the flow of investments that the oil industry needs over the longer term.