Crude Soft on Tuesday as Schork Describes Market Being "Kept Afloat on Headlines"

The market as unusually resilient. File Image / Pixabay

On yet another day that is contributing to yet another week of see-saw crude prices - this time with U.S. crude on Tuesday slipping 34 cents - one expert has stated the obvious: that the oil market is being kept afloat by media headlines instead of fundamentals.

Although losses were limited due to the feel-good aftermath of the U.S. and Mexico agreeing to overhaul the North American Free Trade Agreement (NAFTA), West Texas Intermediate on Tuesday declined 34 cents to $68.56 per barrel and Brent dropped 25 cents to $75.96 per barrel, the losses being attributed to expectations that data on U.S. oil inventories to be released on Wednesday will show a drop in crude stocks last week.

Warren Patterson, commodities strategist for ING, observed, "We were of the view earlier that we are expecting prices to edge a bit lower over the rest of this year, but I struggle to see that; I see the market remaining well supported, with potential shocks to the upside, depending on what we get from Iran."

CNBC speculated that "The biggest potential catalyst for higher oil prices are U.S. sanctions on Iran's energy sector that come into force in November, and analysts estimate export restrictions could cut supply by anywhere between 650,000 and 1.5 million barrels per day."

But alarmist statements like this, and not fundamentals, are precisely what is motivating traders, according to one respected pundit.

Stephen Schork, founder and editor of The Schork Report, told CNBC that in addition to the fluctuating dollar, "we're also looking at a market right now that is being kept afloat on headlines: some of these headlines are old [such as] Venezuela, [which] is in the final chapter of its Atlas Shrugged saga; Iran sanctions - everyone knows those sanctions were coming up.

"But we have some new headlines of course: what we got out of Iran yesterday threatening to choke off the Strait of Hormuz - that is certainly going to put a geopolitical bid into the market at this point - and some renewed civil strife in Libya is also helping to propel the market."

Schork went on to note that "If we all know the headlines, then in theory it's all priced in, so when you get a market like this that lives off the headlines, you need more and more headlines to feed it."

But he added that "this is a market that's been extremely resilient: on top of geopolitics at the beginning of this summer we had the loss of Canadian imports...and yet the consumer at the pump received a 7 percent discount this summer relative to the last five years....so while we do have these headlines, the market had been able to absorb these shocks and certainly keep the market well supplied."

Schork predicted that if there is a pullback in price, it will occur soon as the summer ends and demand declines.

Meanwhile, a headline that could prove to adequately `feed' the crude market in coming days was provided on Tuesday by Reuters, which reported that U.S. sanctions on Iran are unlikely to stop Iranian oil exports completely, according to Ibrahim al-Muhanna, an advisor to the energy ministry of Saudi Arabia.

He also said that Iran would be unable to close the straits of Hormuz and Bab al-Mandab even partially: "Is Iran able or willing to close completely, or even partially, the Strait of Hormuz or Bab Al-Mandab, or both? The answer is no, and a really big no ... current sanctions are unlikely to stop Iranian exports completely."

Schork's assessment of the crude market is particularly timely, given that crude prices of late have occasionally jumped even though considerable data shows bullish sentiment having all but evaporated.