Oil Prices Reach 2019 Highs as Sentiment, Not Fundamentals, Continues to Sway Investors

One analyst thinks WTI could reach $70 at this rate: File Image/Pixabay

The notion that further sanctions against Iran and more disruptions in Venezuela could contribute to a global crude market tightening was the impetus for oil prices on Tuesday to reach a 2019 high, with Brent up 41 cents to $69.50 per barrel (the highest since November 13), and West Texas Intermediate gaining 99 cents to settle at $62.58 per barrel (its highest since November 7).

Tuesday's performance is further indication that the gains are driven mainly by sentiment and rumour (for example, an unnamed official told media that the U.S. is considering more Iranian sanctions), and trading later this week will likely be influenced again when U.S. inventory data is released and compared to the most unreliable of yardsticks, analytical surveys undertaken by media (a Reuters poll estimates that stocks fell 400,000 barrels last week).

Jim Ritterbusch, president of Ritterbusch and Associates, noted that "Today's multi-month highs in WTI and Brent are keeping this bull move alive as prices are beginning to advance more than we had expected."

It's worth noting that investors have worried for months that weak global economic data could slow demand for crude; but this effective cap against bigger gains may be obliterated in light of figures this week showing a rebound in U.S. factory activity in March and a return to growth in manufacturing in China.

Unsurprisingly, Ted Seifried, chief market strategist at Zaner AG Hedge, told Bloomberg television that declining U.S. rig counts and output, ongoing cuts by the Organization of the Petroleum Exporting Countries (OPEC), and other factors mean "there is room to run" with regards to crude prices: "I wonder if we're going to sniff out that $70 level."

Of course, any of these factors could turn on a dime, including the OPEC cuts, whose sustainability analysts seem to have placed full faith in despite further reports that Russia - which reluctantly became part of the cutbacks - has again fallen short with its share of the crude reductions.

That country's energy ministry disclosed on Tuesday that production at the end of March was 190,000 barrels per day (bpd) below October levels, smaller than the 228,000 bpd cut originally pledged.

It fell upon Bijan Zanganeh, energy minister for Iran, to remind colleagues that fundamentals should not be overlooked: he told Russian media that the "Oil market is in a fragile situation considering the supply and demand balance, so the oil producers should be wary of any trouble in the oil market, especially due to U.S. measures against big oil producers."