Oil Achieves Biggest Yearly Rise Since 2016 - But Analysts Gloomy About 2020 Prospects

Experts insist a "tsunami of oil" will create myriad problems: File Image/PixaBay

It may have been another volatile year for crude trading, but with one day left before 2020 it was disclosed on Tuesday that the commodity was on track for its biggest annual rise since 2016, with Brent gaining about 24 percent and West Texas Intermediate rising 36 percent.

Pundits credited rise on the output cuts enacted - and recently deepened - by the Organization of the Petroleum Exporting Countries (OPEC), as well as the breakthrough earlier in December in trade talks between the U.S. and China that has led to a Phase 1 agreement, likely to be signed next week.

The good news eclipsed an otherwise dull Tuesday of early trading, in which Brent was down 11 cents to 66.56 per barrel by 0158 GMT, and WTI also dropped 11 cents to $61.57 per barrel.

Stephen Innes, chief Asia market strategist at AxiTrader, noted that "Oil prices have followed the general de-risking drift into year-end despite a rise in Middle East tensions and last week's bullish-for-oil-price inventory draws as the broader markets appear to be losing some of that holiday cheer."

Innes was referring to U.S. air strikes on Sunday against the Katib Hezbollah militia group in Iraq and Syria.

Bob McNally, president of Rapidan Energy Group, weighed in with his assessment of 2019: "Demand growth cratered while U.S. production continued to barrel along at high rates and geopolitical risk eased; and now, at the end of the year, weary investors are looking to next year and seeing a tsunami of oil."

For its part, the U.S. Energy Information Administration expects average crude oil prices will be lower in 2020 than in 2019 because of rising inventories from a host of countries, including Brazil, Norway, Guyana - and of course the U.S. itself.

Another expert who has reservations about the commodity's health moving forward is Bob Yawger, director of energy futures at Mizuho Securities USA.

In response to hedge funds being more optimistic on global oil prices than they've been since May, Yawger noted that skepticism is also creeping in, with short-selling increasing the most since October: "It's a disaster waiting to happen: we're seeing the largest net-long speculative position" in both WTI and Brent in seven months.

Barring any unforeseen geopolitical issues, the next big influence on crude trading will occur on Friday, when official figures will either confirm or ruin analytical expectations of a 3.2 million barrel draw in U.S. inventories in the week to December 27.