Oil Price Tumbles, but Market Still Sees Prices Briefly Reaching $100

Open positions and open interest in Brent and WTI have risen dramatically. File Image / Pixabay

As a few brave experts insisted but many prominent analysts dismissed in the furious talk about oil hitting $100 per barrel, crude prices on Thursday tumbled sharply - the result of traders cashing in on the recent rally; and now, although chatter about oil in the triple digits continues, it's being augmented by more sober observations that record high prices won't last long.

Brent on Thursday fell $1.65, or 1.9 percent, to $84.64 per barrel, while West Texas Intermediate plummeted $2.08, or 2.7 percent, to $74.33.

Brian LaRose, senior technical analyst at ICAP-TA, noted that the losses were entirely predictable: "The market was a bit over-extended on a short-term basis"; however, he added, "I would need to see both $84.35 and $82.85 broken [for Brent] to suggest that something more than just a minor rest stop in an ongoing uptrend is likely to take place here."

Jeff Currie, global head of commodities research at Goldman Sachs (which Bloomberg noted has made numerous about-faces in its crude forecasts of late), said the price rally has gone too far too fast, and he thinks Brent will settle back into a range of $70 to $80 per barrel before the year ends.

Still, unnamed analysts told CNBC that uncertainty over how much oil will be lost due to the U.S. sanctions against Iran means that prices remain at risk of "rocketing toward $100" until the market gets clarity.

Indeed, Reuters reported that oil traders "have piled into wagers that U.S. crude oil could surge to $100 a barrel by next year, a milestone that until recently many considered unthinkable due to record U.S. production growth and relatively flat global demand."

According to CME data, the number of open positions on $100 December 2019 WTI call options CL1000L9 (bets on futures hitting that price by the end of 2019) has risen by 30 percent in the last week to a record 31,000 lots; open interest in $100 December 2018 Brent call options LCO10000L8, which expire in late October, is currently more than 50,000 lots, more than any other strike price for that month.

It's unclear why the argument has been rejected en masse that the Organization of the Petroleum Exporting Countries (OPEC), its allies, and the U.S. can make up for the Iranian shortfall, but  Jonathan Barratt, chief investment officer at Probis Securities, insisted in a CNBC interview that "at the end of the day, all of the players have the levers to put more supply onto the market; so we're only up here [price wise] in the short term in my view."

He added that politics and not fundamentals have played a significant role in the current high prices, and that Saudi Arabia and Russia have sufficient spare capacity, 'and that if called for they can control the price and put more supply on the market."

Earlier this week, Russia demonstrated the sanguine attitude many producers in the east have with regards to the state of the crude market when it stated once again that it is well within its power to escalate output but will do so only if the situation calls for it.