Oil Edges Down After Recent Strong Gains
January 16 2018 - 5:43PM
Dow Jones News
By Alison Sider and Christopher Alessi
Oil prices fell Tuesday, breaking a streak of gains and raising
questions about whether oil's recent rally is running out of
steam.
U.S. crude futures fell 57 cents, or 0.89%, to $63.73 a barrel
on the New York Mercantile Exchange, breaking a five-session streak
of gains. Brent, the global benchmark, fell $1.11, or 1.58%, to
$69.15 a barrel on ICE Futures Europe, ending a six-session winning
streak.
Tuesday's move lower was likely influenced by profit-taking
after the recent string of gains, brokers and traders said. It
comes as investors have become exuberant about oil's prospects,
accumulating record high net bullish positions in both benchmarks.
That kind of positioning can exacerbate selloffs, analysts said, if
many investors get cold feet at the same time and rush to exit
positions.
"If I were long, I'd be getting out here," said Michael Hiley,
head of over-the-counter energy trading at LPS Futures LLC. "I tend
to think this is pretty negative price action."
Oil's recent upswing has been fueled by tightening supplies
after more than a year of cutbacks by the Organization of the
Petroleum Exporting Countries and 10 other major exporters, along
with unexpectedly strong demand and other unanticipated supply
disruptions. Brent on Monday closed above $70 a barrel for the
first time since December 2014.
Oil prices may have been pulled lower Tuesday by a stock market
swoon. The Dow Jones Industrial Average surged above 26000 for the
first time Tuesday but then retreated.
In addition, market participants are wondering whether weeks of
declining oil inventories in the U.S. could be interrupted as
refiners begin yearly maintenance, reducing their appetite for
crude.
"I think the market is going to look to see if crude-oil
inventories will rise over the next couple of weeks," said Andy
Lipow, president of Lipow Oil Associates.
And with higher prices comes more production, something that
could weigh on the market. The U.S. Energy Information said Tuesday
estimates that shale output will rise by 111,000 barrels a day in
February, according to the monthly drilling productivity report
released Tuesday. North Dakota oil gas officials said Tuesday they
expect the state's output to break a record in the first half of
the year.
Still, many analysts expect that investors will buy the dip, at
least for now.
"The bullish story is still intact," said David Leben, director
of commodity derivatives at BNP Paribas.
Analysts at Goldman Sachs said Tuesday that they expect new
supply from the U.S. to come eventually, but said there are still
"upside risks" to their forecasts for Brent prices at $62 a barrel
and West Texas Intermediate prices at $57.50 a barrel.
"We expect that producers, even if more disciplined, will
ultimately respond to this price signal," they wrote. But "the lag
of this response, inventories nearing normalized levels, upside
risks to our optimistic demand forecasts, and an OPEC cut that may
overshoot, however, all create risks that OECD inventories fall
below our expectations of five-year average levels"
Several banks have lifted their forecasts for crude prices this
year. Bank of America Merrill Lynch now anticipates Brent prices to
average $64 a barrel this year, compared with $56 previously.
Société Générale is calling for Brent to average $62 a barrel, up
from $58 previously, and said it expects U.S. prices to average
$57.75, up from its previous forecast of $54 a barrel.
But the SocGen analysts cautioned that they believe prices are
likely to tumble from current levels.
"Our view is that prices are overheated, and will correct
lower," the analysts said. "We believe that the current situation,
with strong uplift from fundamentals, non-fundamentals, and
geopolitics all at the same time, is not sustainable. All three
legs of the oil market stool have temporary factors built in right
now, and these factors should ease."
Gasoline futures fell 1.11 cents, or 0.6%, to $1.8384 a gallon.
Diesel futures fell 2.16 cents, or 1.04%, to $2.0634 a gallon.
Write to Alison Sider at alison.sider@wsj.com and Christopher
Alessi at christopher.alessi@wsj.com
(END) Dow Jones Newswires
January 16, 2018 17:28 ET (22:28 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.