Oil Down on OPEC, China Concerns, As Kemp Sees A "Stutter" In The Bull Run

But Hess Corp sees fossil fuel demand rising for at least another decade: File Image/PixaBay

Even though it wasn't much of a concern to analysts in the recent weeks it became a news topic of debate, the likelihood that the Organization of the Petroleum Exporting Countries (OPEC) and its allies would soon increase oil output caused a more than 1 percent drop in crude prices on Monday.

Trading was also negatively influenced by reports that China's factory activity growth slipped to a nine-month low in February.

For once, the economic revival brought about by rising Covid vaccinations plus the long-awaited $1.9 trillion coronavirus-related relief package passed in Washington on Saturday failed to keep crude prices from dropping on Monday: Brent settled at $63.69 per barrel, falling 73 cents, or 1.1 percent, and West Texas Intermediate settled at $60.64 per barrel, losing 86 cents, or 1.4 percent.

As for the reasoning behind the China concerns, Phil Flynn, senior market analyst at Price Futures Group Inc., explained, "There's some talk that their strategic reserves are filled up, and so some people are betting against the Chinese continuing to drive oil prices."

Meanwhile, analytical attention continues to be focused on OPEC, which meets on Thursday and could discuss allowing as much as 1.5 million barrels per day (bpd) of crude back into the market, according to sources.

Still, despite Monday's losses, the bullish sentiment for the crude market persists and on Monday was echoed by John Hess, chief executive at Hess Corp, who told CERAWeek that oil  demand is expected to rise over the next decade and fossil fuel will remain a crucial part of the energy mix, even as renewables draw increasing attention.

He said, "We don't think peak oil is around the corner - we see oil demand growing for the next 10 years," but he added that "We're not investing enough to grow oil and gas in the future," and pointed out that prices would need to rise to support that investment.

However, strictly from a numbers point of view, John Kemp, commodities analyst for Reuters, thinks the bull run enjoyed by crude is stuttering, if only temporarily.

On Monday he noted that hedge funds "have reduced their position in petroleum futures and options for the first time in 16 weeks, the first weekly net sales since the first successful coronavirus vaccine trials were announced in early November" (hedge funds and other money managers sold the equivalent of 9 million barrels in the six most important petroleum futures and options contracts in the week to Feb. 23).

Kemp added that "After three months in which benchmark crude prices had risen by more than $26 per barrel or 68 percent, bullish positions had become stretched, increasing the probability of a reversal, at least in the short term."