Analysts Predict Crude Prices Will Drop to $52 - Even Though Demand is at All Time High

Tuesday April 30, 2019

Although Brent prices on Tuesday held steady and U.S. crude gained 51 cents after flooding retrained flow from the main storage hub in Cushing, Oklahoma, early trading on Wednesday resumed the familiar pattern of concerns over a weakening China economy being buffered somewhat by the efficacy of the Organization of the Petroleum Exporting Countries (OPEC) output cuts.

At 0101 GMT on Wednesday, Brent dropped 26 cents to $69.85, while West Texas Intermediate declined 44 cents to $58.70 per barrel.

James Mick, managing director and energy portfolio manager with Tortoise, said in an investor podcast that "Crude oil was weak ... primarily as the bears on demand are winning compared to the bulls on supply."

He also reiterated what scores of analysts have stated in recent months: "Investors are concerned from a macro perspective about worldwide demand, particularly in the face of the growing trade dispute between the U.S. and China."

While Wednesday's preliminary trading figures demonstrate that analytical concern over the trade dispute may be reaching obsessive proportions, Tuesday's performance was noteworthy in that it arguably demonstrated the only way for crude to gain momentum is via something as temporary as a flood.

Meanwhile, Fawad Razaqzada, analyst at Forex.com, said another concern was that "falls in emerging market currencies [are] making dollar-priced crude oil dearer to purchase in those nations," and that crude prices could fall back even further.

Louise Yamada, founder of Yamada Technical Research Advisors, thinks such a fallback is extremely likely: earlier this year she predicted the crude rally would stop if prices broke below $60, and on Tuesday she told CNBC that  "Now, it looks as though things have broken down, and you're possibly in a trading range between $52, where the … 200-week moving average is, and $62, which is now our resistance having broken as a support level."

She added, "You could have some interim trading, however, the weekly momentum is right on the verge of going negative, which suggests further downside, and the monthly momentum ... has been on a sell for quite some time; so, at the moment, I think the path of least resistance may be to lower levels."

Ironically, amid all this speculation, the Energy Information Administration suggested that global oil demand is holding up pretty well: it estimated that it will average over 100 million barrels per day (bpd) this year for the first time.