Bearish Outlook Continues as Crude Makes Monthly Loss and US Shale Growth Offsets OPEC Cuts

by Ship & Bunker News Team
Monday May 1, 2017

With the week ending on another disappointing market close - both U.S. light crude and benchmark Brent posting losses for the week and the month - banks are seeing opportunity in what they define as a "narrow" trading range.

Hans van Cleef, senior energy economist at ABN AMRO Bank, told CNBC that the recent price drops are "a nice buying opportunity within the relatively small trading ranges we see.

"After all, the main drivers — OPEC production cut versus U.S. production gains — are unchanged."

West Texas Intermediate on Friday settled up 36 cents at $49.33 per barrel, and Brent traded up 27 cents at $51.71, neither gains being enough to avoid the weekly and monthly losses (in the case of WTI, it has lost ground in 8 of the last 11 sessions).

Daniel Hynes, senior commodity strategist for ANZ, took the opportunity on Friday to reiterate the familiar bigger picture, and that is the fact that low volatility will persist unless something significant happens to change fundamentals.

He told CNBC that the "competing forces" of the bears hanging onto concerns of high inventories and U.S. shale and the bulls' faith the the Organization of the Petroleum Exporting Countries (OPEC) production cuts "are really locking oil into that low $50s sort of range."

But while Hynes overview is cool and considered, Gordon Todd, founder of TradingAnalysis.com, is worried that oil "has spent a lot of time consolidating around this $52 to $55 area now...we've been rejected [from a breakout above $55] for probably the fourth time now."

He also points out that oil is hitting "uptrend support" levels (widely viewed as catalysts for moves) that had been in place since the middle of last year, and if oil falls below those levels, it could spur accelerated selling "below about $47 to $47.50."

About the only thing absent in Friday's market assessment was any comment on where prices would go if OPEC fails to agree to a six month extension of its production cutbacks, which supporters say is vital in encouraging a better demand and supply ratio: that scenario was explored last month by Gene Marcial, manager of market research at Tradition Energy, who said that "Without the production cut agreement, I think you could basically target the low to mid $30s; I'm of a mind they extend it."