Oil Dips on Demand Concerns, Russia Commitment to OPEC Cuts
By Barani Krishnan
Oil bulls have no intention of letting the market slide. Yet, pushing for new meaningful highs is going to require solid demand and a supportive economy, not just OPEC production cuts.
There's also the question of Russian commitment to OPEC+ output cuts beyond June, something Moscow has indicated reluctance to continue with, given its worries about losing market share to U.S. crude if it were to extend those cuts.
New York-traded West Texas Intermediate crude was down 55 cents, or 1%, at 63.34 per barrel by 1:28 PM ET (16:28 GMT). It hit a five-month high of $64.79 last week.
London-traded Brent, the global benchmark for oil, was off by 46 cents, or 0.6%, at $71.09. It matched a November high of $71.78 last week.
While those with long positions are still hopeful of moving to $65 and beyond on WTI and $72 or more on Brent, uncertainties about global oil demand and the economy still dog the market.
"CTAs still have a ton of bullets as they are only 30% long of the maximum according to people who track it and that’s a risk to more upside," said Scott Shelton, energy futures broker at ICAP (LON:NXGN) in Durham, N.C. "But the price action needs to fuel this buying and we need to reinforce the market with new highs, or the shorter-term systems will start to turn into a market that is not very short."
"I have heard time and time again that the 'physical markets are strong,' but it may not matter if we turn lower as the money flows out," Shelton added.
The Paris-based International Energy Agency pointed out in its monthly report last week that demand was a “very important” piece of the equation for oil market rebalancing and there was much uncertainty now with the less-than-stellar outlook for the global economy.
Russian Finance Minister Anton Siluanov said Saturday that Moscow and OPEC may decide to boost output to fight for market share with the United States, although the risk was that oil prices could eventually fall to as low as $40 per barrel from such a move, TASS news agency reported.
"The risks of an upcoming global recession are very high,” Siluanov said. “We are ready for a change in global energy prices - we have prepared the budget, the reserves, the balance of payments. We have created this kind of system.”
ICAP's Shelton predicted more headwinds ahead on both the flat price of oil and gasoline, known by its market initials RBOB.
"I think the willingness to buy WTI on dips .... will be limited at best," Shelton said. "The RBOB market is susceptible to a pullback as well, regardless of the fundamentals."