First 2020 Crude Trading Day Marked by Conflicting Geopolitical Sentiment

Meanwhile, analysts once again forecast the demise of U.S. shale: File Image/PixaBay

Tension in one part of the globe and relief in another resulted in paltry gains for crude on Thursday, the first trading day of 2020.

Brent settled up 25 cents at $66.25 per barrel, while West Texas Intermediate rose 12 cents to settle at $61.18.

Even though the immediate issue was resolved thanks to decisive military force ordered by Washington, traders on Thursday worried that protesters storming the U.S. Embassy in Baghdad would lead to further escalation of tensions between the Americans and Iran, which was said to be planning additional attacks.

But these worries were offset by optimism that the trade truce between China and the U.S. will support energy demand into the new year; additionally, traders were buoyed by the deeper output cuts promised by the Organization of the Petroleum Exporting Countries (OPEC) - which had previously supported prices - scheduled to begin this month.

Geopolitical issues aside, one disclosure on Thursday could theoretically calm worries about oversupply and result in substantial crude gains in the days ahead: Reuters reported that U.S., oil growth will be vastly slower in 2020, signalling "a new and unfamiliar era of self-restraint for the go-go shale industry."

The news agency went on to note that due to spending cuts and production declines common to shale wells, growth may slow to a rate of just 100,000 barrels per day (bpd) of new output, even if prices remain above $60 per barrel.

Raoul LeBlanc, an energy analyst with IHS Markit, said, "Our view is that (rapid growth) is kind of over."

But analysts have been predicting such declines for several years; one expert who remains concerned about the capabilities of U.S. shale is Chris Weafer, a senior partner at Macro-Advisory, who told media that whatever producers do in 2020 will be pivotal for prices.

He said, "The big uncertainty this year - and it is already beginning to be talked about - is: can or will U.S. producers be able to continue to add as much extra volume as they have been for the last seven or eight years?

"This is a huge question."

Meanwhile, Tamas Varga, senior analyst at PVM Oil Associates, said in a research note published Thursday that while no significant price decline was anticipated in the short-term, "vicious corrections could happen in coming months."