Crude Gains Thursday, IEA Sees Suppliers Moving for $60 Floor

Andy Hall says oil prices will rebound. File Image / Pixabay

The unexpected news that Saudi Arabia is ready to cut crude shipments to U.S. refiners in a bid to prevent an inventory buildup was cited as one reason why West Texas Intermediate on Thursday  gained $1.43 to $52.58 per barrel, and Brent climbed $1.30 to $61.45 per barrel.

Also cited as a reason was an International Energy Agency report postulating that combined output losses from Iran and Venezuela could reach 900,000 barrels per day (bpd) in the second quarter of next year, more than doubling the 800,000 barrels the Organization of the Petroleum Exporting Countries (OPEC) intends to remove from the market.

People with knowledge of the matter told Bloomberg that Saudi crude shipments to the U.S. in January could match the 30-year low set in 2017 of 582,000 bpd, down about 40 percent from the most recent three-month average; the curbs will presumably affect refiners such as Valero Energy Corp., Phillips 66, Chevron Corp., Exxon Mobil Corp., and Marathon Petroleum Corp., possibly obliging them  to buy crude from Mexico or Canada.

Analysts took the opportunity once more to suggest a market bottom is fast approaching: Phil Flynn, senior market analyst at Price Futures Group, remarked, "We should see a continued drawdown in crude supplies in the coming weeks and better demand; that would suggest we could be close to a floor in the market."

Tim Mulholland, president of TJM Limited, told Bloomberg television that he agreed with assessments that suppliers will put a $60 floor under oil, but  he added "I think the real question is demand, not so much supply, going forward."

Indeed, while a market bottom was discussed on Thursday, far more prevalent was concern about the near future, spurred partly by the fact crude is still firmly in a bear market and record U.S. output of over 12 million bpd in the New Year threatens to outstrip demand.

Scott Bauer, chief executive officer of Prosper Trading Academy, observed, "The excess volatility is being driven by the massive uncertainty about what's going to happen next; it's a great market for day-traders, not so great if you're trying to put on a long bet."

For his part, legendary trader Andy Hall expressed frustration that the oil market is heavily influenced by data like the weekly U.S. stockpile figures: "The fact is, they only cover the U.S., which is 25 percent of the world oil market; the data available for inventories elsewhere in the world is poor at best."

However, Hall falls into the camp that believes crude prices have hit a bottom, and he went on to remark that "I think with prices hovering around or a little over $50 a barrel, I think you would have to have a pretty negative outlook on the global economy to believe that prices will continue their downward trajectory.

"So I think on balance, if you want to place a bet on oil right now, you're probably better off betting on it going up than going down."

Earlier this week, Sean Fenton, portfolio manager at Tribeca Investment Partners, mused that "We see capacity for the market to probably move up $10 through the first half of next year and provide a bit of value back into some of those energy equities as well."