Oil Prices Continue Ascent
West Texas Intermediate (WTI) and Brent crude oil finished higher for the third consecutive trading day.
The December WTI contract added 69 cents Tuesday, settling at $57.23 per barrel. The light crude marker peaked at $57.50 and bottomed out at $56.30.
January Brent gained 83 cents to settle at $62.96 per barrel.
Bill Ebanks, a managing director in the energy practice at AlixPartners LLP, observed that Brent and WTI are up approximately one percent and two percent, respectively, so far this week.
“Oil prices are showing signs of support from several factors, including a continued constructive narrative regarding a potential ‘phase-one’ U.S.-China trade deal and bullish report on U.S. economic strength – as evidenced by job growth at 128,000, versus the going-in consensus forecast of 75,000 jobs,” said Ebanks.
Ebanks noted that additional drivers bolstering crude prices stem from apparent restraint by various oil and gas industry players.
“Other factors lending support include continued declines in U.S. and international rig counts, which seems to demonstrate capital discipline among producers on top of the expected OPEC cut extensions at their December meeting,” he said. “And all that, of course, is on the back of the announced Saudi Aramco initial public stock offering.”
Barani Krishnan, senior commodities analyst with Investing.com, remarked that the “deafening din of the so-called impending U.S.-China trade deal” and a steady stream of new highs on Wall Street are “shutting all other intelligent sounds” emerging in regard to oil supply and demand. One such consideration is OPEC’s acknowledgement Tuesday that it has lowered its medium- and long-term global oil demand forecasts, he said. He added that OPEC cited tough market conditions and “signs of stress” in the world economy as justification for the move.
“Oil prices instead rose another one percent – extending their gains on WTI to more than five percent since Thursday’s settlement – as the market preferred to stick to the U.S.-China narrative,” continued Krishnan. “Another new development also found favor with bulls: weakening prospects for shale.”
Krishnan explained that Scott Sheffield, CEO of Pioneer Natural Resources, has been quoted as saying he expects the Permian Basin to “slow down significantly over the next years.” Shale has been OPEC’s top nemesis over the past five years after all-time highs in U.S. domestic oil output prompted OPEC to cut production to keep global prices stable, Krishnan added.
“Now, U.S. producers are under pressure to trim spending and return profits to shareholders through dividends and share buybacks,” said Krishnan. “So, flows from shale may not be as strong as before, Sheffield says.”
Although Pioneer is just one Permian operator, it is an important one, noted Krishnan.
“Majors such as Exxon and Chevron have so far stuck to their high production targets in shale,” he said. “That’s probably why the EIA (U.S. Energy Information Administration) continues to estimate weekly production at a record high of 12.6 million barrels per day.”
Reformulated gasoline (RBOB) for December delivery settled at $1.67 per gallon Tuesday, reflecting a one-cent increase.
Also closing higher during Tuesday’s trading was Henry Hub natural gas. December gas futures gained four cents to end the day at $2.86.
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