oil prices showing technical strength 2242092015
Crude prices are moving up despite oversupply fears
Oil prices are moving up again after the sharp, Fed-induced dip they suffered on Friday (September 18). US benchmark West Texas Intermediate October futures jumped US$2, or 4.5 per cent, on Monday to US$46.68 a barrel on the NYMEX.
Monday’s jump indicates prices may be resuming the uptrend that was flagged by the breakout move US crude made last Wednesday, when prices surged five per cent.
Analysts are attributing crude strength to technical factors given that fundamentals of oversupply remain unchanged, and that Friday’s decline in US oil rig count may have triggered some soul-searching in oil bears. The oil rig count has declined for three consecutive weeks, suggesting low oil prices may be affecting production. The current downward trend in rig deployment could cut US oil production by an estimated 250,000 bpd between the second and fourth quarters of this year, according to Goldman Sachs.
"Some producers are certainly under pressure, but global supply remains higher than demand on the back of strong OPEC production," said Tim Evans of Citi Futures.
A fire on Saturday at a unit of Husky Energy's 155,000 barrel-per-day (bpd) refinery in Lima, Ohio, may also have had something to do with Monday’s price spike.
Futures settlement looming on Tuesday likely also contributed, according to CNBC. "We're seeing some crackspread action as we move toward WTI expiration and it's all contributing to the bump higher," said Donald Morton, energy trader for Herbert J. Sims & Co, an investment banking house.
Nevertheless, on the long term, analysts remain highly bearish on crude oil, with Goldman Sachs of the view that oversupply conditions could keep prices low for as long as the next 15 years. Last month, the investment bank warned that supplies were running ahead of consumption, and that unless some production capacity is taken off the market crude could fall to as low as $20 a barrel.
That could happen if stockpiles reach their limit of physical capacity, or when refineries shut down for maintenance, usually in October or March.
Australian energy companies, however, fell hard on Monday, hit by fears of global economic growth. Woodside Petroleum Limited (ASX:WPL) fell 2.9 per cent to AU$28.83, Oil Search Limited (ASX:OSH) was down 0.13 per cent to AU$7.48 and Origin Energy Ltd (ASX:ORG) was down 3.82 per cent to AU$6.79. Santos Ltd (ASX:STO) bucked the trend, though, and rose 0.63 per cent to AU$4.78.
