Oil Market Movements - Thursday Week 2

Crude's wins continue, albeit with fundamentals beginning to impact sentiment: File Image/Pixabay

More price gains for crude on Thursday, continuing the commodity's winning streak for every trading day of the New Year to date - however, this time the gains were severely capped by weak economic news from China and no resolution in the trade talks between that country and the U.S.

West Texas Intermediate on Thursday settled up 23 cents at $52.59 per barrel - enough for a five week closing high - while Brent rose 30 cents to $61.74 per barrel.

The lackluster trading session was also the result of "swings in the equities," according to Jim Ritterbusch, president of Ritterbusch and Associates, but it also suggests the sentiment that has driven oil prices upward in 2019 may no longer be powerful enough to eclipse fundamentals such as China's producer prices in December rising at their slowest pace in more than two years, which could lead to deflationary risks.

As for the China/U.S. talks, traders earlier this week were spurred to send crude prices higher based on the flimsiest of sentiment, ie: participants in the talks telling media the discussions were going well; it is therefore unsurprising that U.S, president Donald Trump on Thursday telling reporters that both countries were having "tremendous success" but offering no other details would just as easy turn sentiment in the other direction.

Still, although oil is still down about 30 percent since reaching a four-year high in October, the current winning streak is the longest since 2010, which makes complete sense to Eugen Weinberg, head of commodities research at Commerzbank AG: he told media that "The pessimism of market participants at the end of the year was excessive, and so we expected prices to rise."

However, he added that for a further price increase, a decisive action by OPEC [the Organization of the Petroleum Exporting Countries] is necessary" - a reference to the cartel's current agreement to cutback crude production by 1.2 million barrels per day (bpd), which some analysts doubt will be enough to balance global supply and demand.

Daniel Ghali, a commodities strategist for TD Securities, had the same basic outlook: "We've seen quite a few positive events since the market was falling off a cliff; with OPEC seeming committed, the outlook for crude is a lot less gloomy than some people had expected."

The OPEC cutbacks are widely regarded as the cure-all to the worry that global inventories are swelling to the point of a glut, and although Khalid al-Falid, energy minister for Saudi Arabia, recently vowed to lower the kingdom's shipments even further in February as it follows through on the deal, there is substantial evidence the cutbacks may not continue as smoothly as planned.

That notion was reinforced on Thursday, when Bijan Zanganeh, energy minister for Iran, publicly declared yet again that U.S. sanctions against his country were "fully illegal" and Tehran would not comply with them.

He also said Iran would not discuss the volume or destination of its oil exports while it remained under the sanctions.