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Oil Realities and Pricing Pressure

By: Energy Capital Research Group
Harvest Exchange
June 5, 2018

Oil Realities and Pricing Pressure

$60-Handle Blues

Crude oil prices have been on a yo-yo for the past week.

At 2:30 PM on May 21, WTI (West Texas Intermediate, the benchmark crude rate set daily for futures contracts in New York) closed the trading session at $72.24 a barrel. It then proceeded to lose 8.9% through the close on June 1.

Meanwhile, the more widely used global standard and London-set Brent benchmark reached a closing high of $79.81 on May 23. By close on June 1, it had also declined by 3.8%.

Some of this was certainly to be expected, given a rapid earlier rise in crude prices. For example, WTI improved 7.2% for the month ending May 15, while Brent had shot up 9.6% for the same period.

However, the sound bites coming from pundits have largely missed the mark – either on the movement up or the subsequent retreat. This is not essentially about rising US extraction volumes or subtle signals from Saudi Arabia and Russia on maintaining production restrictions.

This is basically about the new balance that is rapidly forming in the international market.

That balance has been developing for some time. While it addresses traditional considerations of supply and demand, there have been some added wrinkles of late.

My analysis, buttressed by a decidedly strong opinion among my global contact network, is two-fold in nature. First, the slide is coming to an end. And second, the floor of the pricing band is moving up. Both point toward mid-$70 WTI and plus $80 Brent in the near term.

There are three overriding elements indicating positive directionality in crude oil pricing.

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Originally Published at: Oil Realities and Pricing Pressure