Crude Ends on Weekly Gains As Hard Evidence Suggests a Market Tightening

Friday May 17, 2019

In a repeated of recent end-of-week market performances, crude prices dropped on Friday but not enough to prevent a weekly gain - the first rise in four weeks, in the case of U.S. oil.

Based largely on the ongoing U.S./Iran political tensions, West Texas Intermediate settled 11 cents lower at $62.76 per barrel, enough to contribute to a weekly gain of 1.8 percent; Brent fell 41 cents to $72.21 per barrel, but was up 2.3 percent for the week, its first gain in three weeks.

The difference in trading this time out is that instead of acting on pure sentiment, the worries of the experts are supported by reports that physical oil traders around the world are desperate to secure crude, and prices for actual barrels are now trading at the highest in half a decade.

Greg Newman, co-CEO of Onyx Commodities, remarked, "We have now reached the stage where crude differentials globally and across all slates are strong.

"There is only one conclusion: the prompt market is short of oil; with the current situation, the outright price should continue to strengthen until demand suffers."

According to ICE Futures Europe data, Brent for July is now trading close to $3.40 per barrel more than for December, the highest premium in the life of those two contracts, and comparable premiums can be found in business dealings in other parts of the world.

Still, it could be argued that these numbers are based on perception and that it remains unclear exactly what is the true status of the global crude market, especially when so many countries - including the U.S., Russia, Saudi Arabia, the United Arab Emirates, and Iraq - have demonstrated their ability to turn on the taps at a moment's notice.

Plus, as noted by Bloomberg on Friday, the Organization of the Petroleum Exporting Countries (OPEC) are once again cutting production as promised in their effort to steady the market, and that compliance of late has routinely reached the high 150 percent level.

So, it could best be concluded that with the market's true health so perpetually elusive, trading will continue to be unpredictable: this much was insinuated on Friday by Jim Ritterbusch, president of Ritterbusch and Associates, who told media, "Despite what we view as a balanced oil market both domestically and globally, oil pricing is apparently still sensitive to evolving developments in the Persian Gulf where occasional minor military events are slowly cranking up geopolitical risk premium."