Is Crude Oil Losing Traction with Traders?

Crude oil

Brent crude oil is currently trading at $48.87 per barrel (July 17, 2017) for delivery in September 2017, while WTI crude oil is trading at $46.44 per barrel with delivery in August 2017. Crude oil prices have been boosted by information released by the American Petroleum Institute (API). According to the report, WTI crude oil has been subject to an 8.133-million-barrel draw (decline) in the US.

During the first week of July, commodities traders were expecting just 2.99 million barrels for the week ending Friday, 7 July 2017. This positive news for the oil industry helped to raise prices for oil futures on the Nymex. Oil futures were trading higher by the close of trade on July 14, 2017. By Monday 17 July, oil prices had retreated somewhat off their earlier highs.  However there has been an uptick in demand for crude oil supplies, driven by strong demand from China. That oil briefly touched $49 per barrel is encouraging to markets as it helps to boost the market cap of the energy stocks.

OPEC and US Crude Oil Producers Go Head to Head

The bullish sentiment vis-à-vis crude oil reserves is based on reduced expectations of oil inventory increases. For example, the Energy Information Administration (EIA) has downgraded its oil forecast from 10 million barrels per day to 9.9 million barrels per day during 2018. Unfortunately for oil bulls, the slight downward revision of oil production is unlikely to significantly alter the trajectory of oil price trends moving forward.

Based on the latest figures from the American Petroleum Institute (API), crude oil inventories have built up to 1 million+ barrels in 2017. It should also be pointed out that inventories of petroleum declined by 801K barrels for the week ending Friday, July 7, 2017. This is insignificant compared to the 5.7-million-barrel decline recorded on Friday, June 30, 2017. Presently, commercial inventories of oil in the US are presently 495.4 million barrels.

The price of crude oil has been performing relatively well given the current situation, and OPEC will soon weigh in by pushing for production cuts from key countries, Nigeria and Libya for 2018. Recall that these African countries were not subject to the current round of production cuts, and their participation will certainly assist in boosting OPEC’S oil prices. In 2017, 11 OPEC countries and Russia agreed to reduce oil production by 1.8 million BPD. However, increasing production from US crude oil producers will mitigate the effectiveness of OPEC’s decision.

How Are Traders Reacting to Market News?

Traders have been following oil price movements with eager anticipation. Traders typically follow the latest price movements in crude oil via daily financial news updates at leading trading platforms such as the Stern Options YouTube page. A leading executive from the company recently commented that demand for US oilfield services was ‘unsustainable.’ However, this is likely to increase as production numbers rise in 2018. That bullishness is echoed by other analysts.

Goldman Sachs is warning traders that the price of oil could dip below the key $40 per barrel in 2018, unless some major geopolitical event drives prices through the roof. This could take the form of an escalation in tensions between the US, North Korea and other parties, terrorist attacks, or a major shakeup in political circles. It should be noted that decreases in oil inventories have done little to boost oil prices beyond a few dollars.

While crude oil inventories plunged recently, there is concern about overall US production. Consider that the latest data indicates an uptick towards 9.4 million BPD, up 59,000 barrels recently. The fact that US drillers are working overtime and oil imports are decreasing is concerning. That Goldman Sachs recently stated oil could go below $40 per barrel depending on how WTI and OPEC producers react to the latest data is also concerning.

Currently, oil markets are characterized by an oversupply. For oil bulls, there is reason to celebrate, given that just 2 additional rigs were added to the total count according to Baker Hughes (Friday July 14, 2017).  The price of crude oil is trading substantially lower than its 2014 levels, and this trend will likely continue. As the world turns to renewable sources of energy, in the form of electric vehicles, and alternative energy such as ethanol, crude oil demand is going to substantially decline.

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