Demand Destruction Again Influences Crude Trading, Prices Decline

Meanwhile, Saudi Arabia could upset near-term price prognostications: File Image/Pixabay

As predicted by some analysts in the earlier session regarding this week's sudden burst of bullish oil trading, crude on Thursday succumbed  to profit taking and the resumption of demand worries – although the correction was mild.

Brent settled down $1.17 to $95.38, while West Texas Intermediate settled down $1.97 to $91.71

Naeem Aslam, an analyst at Zaye Capital Markets, reasoned that, "Investors know that higher oil prices are going to hurt the economy ... not to mention the fear of rates staying higher for longer."

But purely in terms of economic reasoning, demand in the U.S. continues to defy crippling inflation, and growth estimates for the July-September quarter are currently as high as a 4.9 percent rate thanks to a resilient labour market driving wage gains.

This in turn led to U.S. stockpiles falling by 2.2 million barrels last week to 416.3 million barrels, far more than analytical expectations of a 320,000-barrel drop.

Dennis Kissler, senior vice president for trading at BOK Financial Securities, agreed that, "Overall fundamentals remain tight on the supply side; until the true fundamentals change, the market will seem resilient to long lasting selloffs."

However, he added with regards to this week's trading activity, "The latest buying spree has taken prices too high too fast, so any type of negative news can trigger a dramatic selloff."

Contributing a bit of diversity to Thursday's analytical thought, Bart Melek, managing director of TD Securities, told media that oil prices will continue to remain at a "high level" for the rest of the year, with an upside risk if the Organization of Petroleum Exporting Countries (OPEC) continues to keep supplies tight.

Malek added that "Today's price action seems to be Cushing driven [a reference to declines in the U.S. storage hub], as it reaches a 22 million bbl low, the lowest level since July 2022," and he pointed out that if stocks continue to dip below those levels, it's going to be "rough" getting crude out into the market.

But all such prognostications may change if another news item on Thursday comes true: Rapidan Energy Group said Saudi Arabia could ease its production cut sooner than anticipated in order not to risk demand destruction due to high prices.

Bob McNally, president at Rapidan, told Bloomberg television,  "They do not want to deliberately over-tighten the market, because if you get a spike, then you get a demand collapse, and you get a bust.

"The real sensible way to bring prices to heel is for Saudi Arabia and OPEC+ to say: 'We've made our point, we've scared away the speculative shorts'."