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Say ‘So Long’ To The Oil Rally

cushing

Crude oil prices extended their losing streak today as worries about once again rising global inventories frosted hopes that global supply is returning to normal. In the latest clear sign that oil markets continue to be excessively volatile, at the time of writing Brent had slipped to US$55.89 a barrel, from last week’s high of almost US$60, and West Texas Intermediate was trading at US$50.41 a barrel, down from a high of above US$55.

Analysts differ in their opinions on where prices are going. Some, such as Citi’s Ed Morse, remain bullish, arguing that the commodity’s fundamentals support a price rise and the dip we have seen over the last two days is a temporary matter driven by profit-taking. As a result, Citi’s fourth-quarter WTI forecast is US$54 a barrel.

Others, however, such as Jonathan Barratt, chief investment officer of Ayers Alliance, note that the end of driving season usually signals a slump in fuel demand in the northern hemisphere, which naturally weighs on prices.

Historical data support the bearish sentiment: a CNBC study using a hedge fund analytics tool revealed that over the last 25 years, the fourth-quarter performance of WTI has been negative more than half the time, with average quarterly returns over the period at a negative 7.5 percent. The factors determining this slack performance include refinery maintenance season in the U.S. as well as the decreased demand for gasoline, distillates, and heating oil. Demand for the latter two only picks up later in the year when winter sets in. Related: This Giant Oil Trader Sees Upside For Oil Prices

Last week, the bullish outlook was supported by reports from OPEC about improving compliance rates—in August—along with Turkey’s threat to shut down the 500,000-bpd pipeline carrying Kurdish oil to Ceyhan – a threat that Erdogan has for now decided to not go through with. The geopolitical crisis, along with OPEC’s reported compliance increase, were last week’s catalysts, but both are now obsolete as fresh production data for OPEC is available, and Turkey’s threats look like a remote possibility.

Yesterday, Bloomberg survey that showed that OPEC members’ September production had risen by 120,000 bpd—a fundamental that drove prices lower.

While fundamentals seem to be driving prices downward, geopolitical news—whether events or reports of things that may happen—along with OPEC chatter and analyst forecasts, seem to be working to lift prices in between actual supply and demand data.

By Irina Slav for Oilprice.com

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  • Kr55 on October 03 2017 said:
    Every year is different. Wouldn't be surprised to see a flatter maintenance season that gives momentum back to the bulls. Lots of lost time to make up for refiners, and many may have used the downtime in Sept to do their switchover already.
  • Brandon on October 03 2017 said:
    Say "so long" to Tesla instead. Oil is about to surge to a three-years high before end of this month. And be prepared for a corrective statement from Volvo regarding their "all electric from 2019" slogan.

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