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Jim Hyerczyk

Jim Hyerczyk

Fundamental and technical analyst with 30 years experience.

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There’s Not A Lot Of Room For Error In Oil Markets

Rigs

U.S. West Texas Intermediate and international-benchmark Brent crude oil are in a position to finish the week, month and quarter sharply higher. This quite a turnaround from last month when it was trading sharply lower heading into June

Traders are also saying that all the major shorts may have been taken out with this week’s rally and that the buyers may have exhausted themselves. However, the price action on Friday suggests that buyers are still coming in and aggressively willing to chase this market higher.

Fundamentally, international Brent crude oil remains firm because looming sanctions by the White House against Iran are expected to lead to a sharp drop in supplies from the OPEC-member.

WTI crude oil is being supported by supply disruptions in Canada. North America’s oil markets have tightened significantly this week as an outage of Canada’s Syncrude has locked in over 300,000 bpd of production. The outage is expected to last at least through July, according to operator Suncot.

Besides the looming U.S. sanctions against Iran, which is fueling the rally in Brent futures, and the outage in Canada, which is supporting WTI crude, both markets are also benefitting from supply issues in Venezuela and Libya.

As far as demand is concerned, it has been making records all year, and OPEC has said it will raise output in order to meet demand and replace crude from unplanned disruptions. However, concerns have been raised this week that a trade war may cause a slowdown in global economic growth. This could lead to lower demand.

So the debate amongst traders at this time is whether there will be a surplus or a deficit in crude oil supply later this year when OPEC meets to determine its plan for next year. At the end of the three major time periods, however, the price action strongly suggests that investors are betting on a deficit.

The Fundamentals

Despite rising U.S. output, U.S. commercial crude oil inventories dropped by almost 10 million barrels in the week-ending June 22 to 416.64 million barrels, according to the EIA. That’s below the 5-year average level of around 425 million barrels.

The 9.9 million barrel draw was well-above the 2.4 million barrel estimate. It was due to high exports of almost 3 million bpd, coupled with domestic refinery activity hitting a utilization rate of 97.5, the highest in more than a decade.

Not a Lot of Room for Error

Although prices are…




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