Significant Stock Draws Not Enough to Prevent Disappointing Thursday Crude Prices

Friday August 18, 2017

A "battle line" for bullish and bearish traders of $47 per barrel was reached on Thursday, the demarcation declared by John Kilduff, founding partner of Again Capital, as traders responded lukewarmly to on going reports of sizeable inventory draws.

West Texas Intermediate rose 31 cents to settle at $47.09 per barrel, and Brent climbed 76 cents to $51.03, causing Kilduff to remark, "It's worth it to some to try and pick up what looks like cheap crude oil at the moment, but again, there's a lot of bearish factors in this market."

Stewart Glickman, an energy equity analyst at CFRA Research, said, "Crude inventories dropping almost 9 million barrels is a pretty sizable drop, I would have expected prices to be a little better than they were today," but market sentiment is "still pretty weary."

Glickman was referring to U.S. crude stockpiles sliding by 8.95 million barrels to 466.5 million last week - a figure that was offset by crude output rising by 79,000 barrels per day (bpd) last week to 9.5 million bpd, according to the International Energy Agency.

Bob Yawger, director of energy futures at Mizuho, told CNBC, "The production number trumped the storage number, but it was still a draw of 9 million; there are some weaker shorts that are probably sold out and they want to get out."

Thursday's predictable and humdrum market performance was punctuated by an equally predictable voice of optimism for what may be coming down the turnpike, and the messenger this time out was William O'Loughlin, investment analyst at Rivkin Securities, who theorized that if inventory declines continue at the current pace, U.S. stocks will fall below the five-year average in two months.

He stated, "The pace of the declines indicates that [the Organization of the Petroleum Exporting Countries] production cuts are having an effect, although the current oil price suggests that the market is skeptical about the longer-term prospects for rebalancing of the oil market."

But few if any observations could top those made by Yousef Gamal El-Din, anchor of Bloomberg Markets, who earlier this week astutely remarked that "hedge fund managers and money managers in general are getting a little bit bored with the crude oil trade."