Oil Bulls and Bears Claim Market Wins
(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author.)
To say that bearish sentiment has prevailed in the oil market for much of this year would be an understatement. However, regular Rigzone market-watchers observe that oil bulls have posted some recent victories. To be sure, some market indicators also moved the proverbial needle toward oil bears. Find out why both camps could claim “wins” in this review of the past week’s hits and misses in the oil market.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Barani Krishnan, Senior Commodities Analyst at Investing.com: Well, the bulls got what they hoped for – another amazingly positive crude U.S. draw in the weekly Wednesday data set released by the U.S. Energy Information Administration (EIA). The bears got their wish, too, belatedly: the International Energy Agency’s bearish outlook on global oil demand that came on Thursday. Despite their close-sounding acronyms – EIA or IEA – the two agencies couldn’t be further apart in the data they’ve been disseminating on the energy markets.
The EIA has estimated a U.S. draw of 22 million barrels over the past three weeks, despite slowdowns associated with an implosion of new COVID-19 infections. The IEA, meanwhile, is forecasting a demand drop of 8.1 million barrels per day (bpd) for oil in 2020 – despite the global coronavirus situation being a lot less worse than in the United States.
The truth about the world oil supply-demand situation is probably between the two, and that’s certainly not helping the average investor looking for hard and fast numbers.
Tom Seng, Director – School of Energy Economics, Policy and Commerce, University of Tulsa’s Collins College of Business: West Texas Intermediate (WTI) looks to post a gain on the week on several bullish signals and even crossed the $43 level at one point. The EIA Weekly Petroleum Status Report showed a decline of 4.5 million barrels vs. Wall Street Journal analysts’ forecasts of just 2 million barrels. The American Petroleum Institute’s report was more in line at 4.4 million barrels, as was an S&P forecast of 4.4 million barrels.
Inventories of crude, finished gasoline and distillates all remain at levels above the five-year average for this time of year. Refinery utilization increased by 0.5 percent to 81 percent, perhaps reflecting an increase in demand for gasoline and diesel. It still remains low for the summer driving season.
The key Cushing, Okla., (oil storage) hub continues to be the contrarian as inventories actually increased last week by 1.34 million barrels. Could this be an indicator of less demand in the U.S. “Heartland”? U.S. oil production finally fell below the 11 million-bpd to 10.1 million bpd. Satellite watchers of oil tank storage are confirming that global inventories are shrinking as well. The U.S. dollar continues its weak streak, which has also helped support oil prices.
Rigzone: What were some market surprises?
Seng: OPEC continues to see the coronavirus as weakening global demand. The cartel is sticking with their forecast that 2020 oil demand will be down by about nine percent, or 9 million bpd on average. This was the only true bearish signal for the week. The U.S. stock market made substantial gains this week, with the Dow cresting at over 28,000 at one point. However, the stock market seems to be disjointed from how most non-investors see future demand for energy.
Krishnan: The biggest is probably the disconnect between implied demand for oil and the about 1,000 U.S. deaths per day reported from the virus and other containment efforts by state authorities. It’s really mind-boggling on who is consuming all that extra oil in the U.S.
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