Oil hits 14-month low as bulls eye turnaround
The price of Brent crude (Intercontinental Exchange Europe: @LCO.1) hit a 14-month low on Thursday, as soft data from China compounded a weak month for the commodity. However, market analysts now believe that oil could find a floor and expect prices to stabilize in the near future.
Brent futures fell below $102 on Thursday morning to trade at $101.91 per barrel by 9:00 a.m. London time. Meanwhile, U.S. crude (New York Mercantile Exchange: @CL.1) is trading near its lowest level since January at $93.21 a barrel. Brent had spiked to $114 a barrel back in June with geopolitical tensions sending its price higher, but reports of a glut in global supplies helped it to ease lower in recent weeks.
'Pivot shift'
And that weakness looks set to be over, according to several analysts. Michael Wittner, the global head of oil research at Societe Generale says that factors such as diminishing supply in Nigeria will help set a price floor for Brent at $100-102.
"Choppy price action in recent days suggests to us that the crude markets may be starting to stabilize, and that a floor may be starting to take shape," he said in a research note on Thursday morning. However, he warned that a full recovery or rebound would take a bit longer. Autumn is traditionally weak for oil markets after the summer driving season and planned refinery maintenance and Wittner believes that this will hinder any potential rally for U.S. crude, in particular.
Analysts at BNP Paribas have noticed a "pivot shift" in the price of Brent, meaning that oil contracts that are due to expire in December this year, and December next year, are almost at the same price. This, according to oil analysts Harry Tchilinguirian and Gareth Lewis-Davies, can be classed as a bullish sign. They are now recommending a "long" position on the spread between these two prices - believing that the longer term price will likely rise higher.
"Physical factors weighing on spot Brent are expected to abate, while seasonality, potential OPEC (Organization of the Petroleum Exporting Countries) supply management and geopolitics all favor a stronger curve structure by year end," they said in a note on Wednesday.
Both banks also concluded that managed money - like mutual funds - was turning more bullish and expected more and more "long" positions on U.S. crude and Brent.
OPEC to cut back?
Meanwhile, delegates from OPEC told Reuters on Tuesday that the decline in prices was not an immediate concern, with many of these oil-producing nations seeing a boost to profits when prices are higher. They told the news agency that the dip is merely a "correction", although some oil analysts still expect the cartel to pull back on production to clear up the clearly oversupplied crude market.
A team of researchers at Barclays, led by Guillermo Felices, believe that supply looks particularly fragile in Libya and Iraq as global demand picks up again.
"Geopolitics remains an upside risk," the bank noted on Wednesday evening in a research note.
"Brent prices have fallen despite geopolitical turmoil because of weak fundamentals. We expect the latter to reverse in (the second half of 2014)."
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