Crude Prices Up Again, But Naysayers Say Fundamentals Are Weak

Also, experts doubt this week's U.S./China meeting will end the trade war: File Image/Pixabay

The prospect of the U.S. Federal Reserve cutting interest rates for the first time in over a decade contributed on Tuesday to crude prices rising about 2 percent to a two week high; however, both contracts were still set to decline for the month due to persistent worries over demand.

Brent gained $1.01, or 1.6 percent, to settle at $64.72 per barrel, while West Texas Intermediate  gained $1.18, or 2.1 percent, to settle at $58.05.

As has been the case in past weeks, circumstances that have caused traders to take a dismal market view are proving to be less severe than thought: for example, economic growth in the U.S. slowed less than expected in the second quarter, strengthening the outlook for oil consumption.

Also, as if to counter lingering concerns about oversupply, a Reuters poll showed that analysts expect crude stockpiles to have dropped by 2.6 million barrels last week - although the hard data coming from the American Petroleum Institute on Wednesday may once more prove the expectations of the experts incorrect.

Further assuaging oversupply fears, at least in theory, is news that Iran oil exports have dropped in July to as low as 100,000 barrels per day (bpd) due to sanctions and rising tension with the U.S. and Britain.

Sara Vakhshouri, an analyst at SVB Energy International, estimated the most Iran could currently export at between 225,000 and 350,000 bpd, and she said, "We can't be sure that all of this capacity has been sold in July; also, it's important to note that some of the deliveries mostly to China are based on IOU contracts and are not new sales."

But experts seem to be resistant to any disclosures that suggest the market is less tumultuous than depicted: Anish Kapadia, founder and managing director of Akap Energy, summarized the overall mood of crude analysts by telling CNBC television that "demand has probably been in general weaker than expected this year...and I see further downside.

"On the supply side of things, the market has been bolstered by theIran situation, but that's also what's kept the oil price high; but overall the market feels a little bit weak from a fundamentals perspective."

It is said that even expectations of success for the highly-touted meeting this week between U.S. and China negotiators to end the months-long trade spat between the two countries are low; reportedly, officials hope the two sides can at least detail commitments for "goodwill" gestures and clear the path for future negotiations.