Only Stock Market Weakness Could Impact Crude, says Analyst as Prices Climb Yet Again

Friday March 29, 2019

Presumably to the ire of U.S. president Donald Trump, who on Thursday caused headlines by tweeting that the Organization of the Petroleum Exporting Countries (OPEC) must turn on the taps and force crude prices down, oil on Friday rose again - albeit modestly.

As of 0100 GMT, West Texas Intermediate was up 24 cents at $59.54 per barrel; Brent crude futures had yet to trade, but Friday's preliminary showing demonstrated yet again that the commodity has come a long way since the doldrums of 2018.

This much was conceded by Ole Hansen, head of commodity strategy at Saxo Bank, who remarked, "Production cuts from the OPEC+ group of producers have been the main reason for the dramatic recovery since the 38 percent price slump seen during the final quarter of last year.

"In fact, the recovery has been so strong and swift that WTI is currently heading towards its biggest quarterly gain – currently 32 percent – since Q2 2009, when the recovery from the global financial crisis saw it jump by more than 40 percent."

Of course, the U.S. sanctions against Venezuela and Iran are also supporting prices, and Hansen pointed out that the only real threat to crude is stock market volatility due to signs of a global economic slowdown.

He said, "The biggest short-term risk to the oil market is likely to be driven by renewed stock market weakness" - even though as Bank of America has pointed out, a slowdown of any significance wouldn't occur until 2020.

Meanwhile, some pundits are predicting a collision course between OPEC's de facto leader, Saudi Arabia, and the White House, which would likely be another influence on crude traders in the near term.

Following Trump's latest warning to OPEC, Stephen Brennock, oil analyst at PVM Oil Associates, stated in a research note published Friday that the collision will occur because the Saudis will continue to ignore the president's complaint about rising prices.

He wrote, "The past few weeks has taught us that president Trump's oil price 'tolerance threshold' is in the high $60s; a sustained move into the $70s basis Brent therefore risks putting the Saudis in the firing line for a dose of ever-increasing Trump pressure."

Brennock went on to argue that every dollar above $70 would help improve the kingdom's financial position (it reportedly needs oil in the $80s to balance its budget), and for that reason it "goes without saying" that it will continue to limit output and thus prop up prices.

Of course, analysts have long pointed out that the behemoth of U.S. production could somewhat offset OPEC's trajectory, and fresh data from the Energy Information Administration shows that producers are still firing on all cylinders: on Friday the EIA revealed that American energy companies pumped 11.871 million barrels per day (bpd) in January, down only slightly from the record 11.961 million bpd pumped in December.