"Nightmare" Crude Market Posts Losses Due to Decline in U.S. Goods Demand

But Venezuela's woes mollified traders somewhat: File Image/Pixabay

The curious phenomenon of concerns over economic growth being softened somewhat by the prospect of tighter supply due to Venezuela repeated itself on Monday within the crude trading community, as West Texas Intermediate fell 70 cents to $54.56 per barrel and Brent dropping 24 cents to $62.51 per barrel.

The losses were said to be a reaction to U.S. government data showing new orders for U.S.-made goods fell in November, especially for machinery and electrical equipment, as well as Genscape reporting that crude inventories at Cushing, Oklahoma rose by over 943,000 barrels in the week to February 1.

However, Venezuela's woes assuaged traders' mounting fears to a degree, with the U.S. sanctions limiting oil transactions between the Bolivian republic and other countries, and the European Union considering imposing more sanctions on the government of president Nicolas Maduro.

While some observers are by now taking the almost schizophrenic motivations of crude trader in stride, Ed Morse, global head of commodities research for Citi, described the market of late as a "nightmare" that isn't yet over.

He told CNBC, "The volatility every year is a good $20 to $25 a barrel between low and high; December was kind of the nightmare for the world where the swings were $50 at a low, $86 at a high and $68 for the average of Brent.

"We're not out of this; there's no real range that we think is going to hold for any length of time."

Morse predicted that moving forward "We have plenty of potentially bullish moves in the market" following a period of soft demand before the seasonal fuel consumption rise begins around May, with Brent rising into the mid-$60 range and hitting $70 before year end - which the researcher believes will encourage U.S. producers to allocate more money to drilling.

Scott Shellady, senior vice president at TJM Institutional Services, voiced the provocative suggestion that the market of late "is really taking a long term view" and that traders are anticipating that geopolitical events such as Venezuela will have specific outcomes (like Maduro losing control of the country and massive amount of crude coming back on line as a result).

Only one thing is certain in this most uncertain of industries: the world can easily be awash in oil thanks to major producers such as Russia, whose finance ministry tax department head, Alexei Sazanov, said on Monday that his country's oil production has not yet reached its peak and expectations that it could decline in the next few years are not justified.

Sazanov also said the government would take necessary steps if it saw risks of a decline in oil production.