Rise in Crude Stockpiles Dampens Tuesday Market Gains, But Still "Bullish" Hope for $55 WTI

Hedge fund bets on a declining WTI are retreating. File Image / CC0 / Pixabay

Talk of Saudi Arabia cutting their oil exports by another 1 million barrels per day (bpd) caused traders to push West Texas Intermediate up near $47 per barrel on Tuesday, but no sooner did the trading session close than prices pulled back slightly on word of another  "surprise" rise in U.S. crude stockpiles.

The American Petroleum Institute reported that inventories rose by 1.6 million barrels in the week to July 14 to 497.2 million, instead of analysts' expectations for a 3.2 million barrel decrease; the U.S. Energy Information Administration will release a report based on more comprehensive data on Wednesday.

Matt Stanley, fuel broker at Freight Investor Services, was compelled to remark, "We're stuck in a range that ... will be tough to break out of without some kind of political factor coming into play."

Even those who maintain a bullish view of the market concede that the strength of their position isn't what it used to be: upon stating that WTI will reach $55 per barrel in the near term, Barnabas Gan, commodity economist at OCBC Bank, told Bloomberg, "I am marginally bullish...it's underpinned by the demand story: in fact, the demand story is very strong right now," with the recent positive data about China and other Asian countries imports as well as the U.S. summer driving season in full swing.

He added, "All is doing well and all pointing towards higher oil prices in the short term."

If $55 can be described as a bullish stance, then more good news comes in the form of hedge funds increasing their WTI net-long position by 19 percent to 178,654 futures and options over the week ended July 11, the sharpest increase in seven weeks, according to the U.S. Commodity Futures Trading Commission; the improvement was entirely due to a 21 percent retreat in shorts.

Matt Sallee, senior managing director at Tortoise Capital Advisors, observed, "The market is starting to recognize that demand is a little better than what has been the consensus view so far this year."

Tamar Essner, an energy analyst at Nasdaq Inc., added that investors are "starting to see, not necessarily full conviction, but a little bit more optimism about some of the developments in the market, even though the overall tone is clearly still bearish - it's kind of going from bad to a little less bad."

It's interesting to note that even oil at $55 is considered by some to be drastic: earlier this week, Bob Parker, member of the investment committee at Quilvest Investment Management, expected WTI to hover at $45 for the next few months, and then "I think there's a high probability we could see a rally back to $50."