Analysts Forecast Everything From $100 Oil To Huge Surpluses As Prices Gain Minimally

Meanwhile, traders find sudden confidence in potential China rebound: File Image/Pixabay

Crude traders on Thursday broke this week’s losing streak for the commodity, with their concern over China’s economy somewhat mollified by that country’s central bank stating it would keep liquidity reasonably ample and maintain “precise and forceful” policy to support a recovery.

China also  experienced a draw on crude inventories in July, for the first time in 33 months, suggesting that demand is robust despite headwinds.

Brent rose 67 cents to $84.12 per barrel, while West Texas Intermediate rose $1.01 to $80.39 per barrel.

Oil was also supported by earlier news from the Energy Information Administration that in the U.S., weekly products supplied (a proxy for demand), rose to the highest since December; this prompted Dennis Kissler, senior vice president of trading at BOK Financial, to observe that “Travel demand has remained stubbornly strong” despite travel traditionally waning after July 4.

In fact, physical markets across the globe have shown signs of robust demand; however, analysts pointed out that volatility gauges are muted, reflecting low trading interest: “In the near-term we don’t expect significant flows from trend followers, suggesting price action may remain broadly range-bound for the time being,” said Daniel Ghali, senior commodity strategist at TD Securities.

Warren Patterson, head of commodities strategy at ING Groep, added, “The oil market has been unable to escape broader market concerns following a raft of weaker-than-expected Chinese macro data this week; however, we remain constructive on oil, given the expectation that fundamentals will continue to tighten due to ongoing supply cuts from the Organization of Petroleum Exporting Countries.”

For its part, Citigroup’s commodity research team on Thursday warned traders that global oil demand typically peaks in August and also questioned the prevailing consensus that the global market will tighten in the near term.

Specifically, it forecast that oil markets will see a 200,000 barrel per day (bpd) surplus this year, followed by a 1.8 million bpd surplus next year, and it insisted that OPEC would have to cut output deeper in order to keep prices above $70 per barrel.

Citi justified its stance by pointing out that Iran and Iraq have oil projects in development and Venezuela and Nigeria may soon ramp up production; it also remarked that "There is simply too little demand growth to expect markets to tighten from [emerging market] growth alone."

Standard Chartered analysts disagreed: on Thursday they theorized that highly effective producer output restraint led by Saudi Arabia will create the conditions for a price rally that could see Brent exceed $100 per barrel in the fourth quarter of this year.

StanChart went on to state that the tightening shown in most H2 balances is spilling over into physical markets, and that oil prices are healthy enough to overcome concerns about China.