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Thursday, March 23, 2023

Oil Steady on U.S. GDP; Questions Surface on Rally

Oil Steady on U.S. GDP; Questions Surface on Rally© Reuters.

By Barani Krishnan

Investing.com – Are oil bulls missing the next shoe to drop on the market?

The question seemed to be on the minds of traders and investors Thursday as New York-traded West Texas Intermediate crude saw another price pop on the back of U.S. GDP data as London-trade Brent, the global oil benchmark, slid.

was up 23 cents, or 0.4%, at $57.17 per barrel by 11:40 AM ET (16:40 GMT) after U.S. gross domestic product registered a seasonally-adjusted annual growth of in the fourth quarter, in line with expectations, but down from a Q3 rate of 3.4%.

On Wednesday, WTI jumped 2.6% after the latest weekly energy data from the U.S. Energy Information Administration showed a phenomenal slump in domestic crude inventories that validated OPEC’s production cuts. The producer group’s defiance of U.S. President Donald Trump’s bid to make it ease up on production cuts also boosted the market.

slipped by 14 cents, or 0.2%, to $66.44 in the latest session, after the previous session’s rise of 1.8%.

Both WTI and Brent are up more than 30% from Christmas Eve lows and about 25% or so higher for 2019. OPEC production cuts announced on Dec. 7 were out carried in earnest from the start of January.

Despite the rally, there was a gnawing feeling among some in the market that the run-up might not last, given the lack of supportive factors (or dark forces not yet evident).

Scott Shelton, energy futures broker at Durham, N.C.-based ICAP (LON:), one of the more pragmatic bulls in the market, was most vocal about it in his daily note on Thursday, urging the rest of the pro-oil crowd to think of the unknowns out there.

“Yesterday’s statistics were quite the shocker for most as the crude draw was far in excess of expectations with a massive drop in imports,” said Shelton, referring to the stockpile drop of nearly 9 million barrels announced by the EIA for the week Feb. 22, compared to forecasts for a build of 2.84 million.

Pursuant to the EIA data, the broker said oil bulls had embarked on more fanciful stories of Saudi Arabia cutting crude exports to the U.S. to zero.

“I feel like I have mental block on being bullish,” Shelton said. “Perhaps it’s because the WTI contract is up 25% YTD, but the S&P is up 12% YTD and XOP is only up 13%. I don’t see the investor push into oil like I have seen in other bull markets. They are making statements like ‘heck Scott, I am better off trading tech and cannabis stocks, I don’t see a story’ in oil.”

He added that there were no huge investments made into the market these days similar to the billions once ploughed by perma-bulls like hedge fund supremo Andy Hall of Astenbeck.

Shelton also contended there was “plenty of oil” in the market despite the OPEC cuts, language that not many oil bulls would like.

“Therefore I don’t see the physical traders driving this market higher either. I see this market as once very short from the CTAs and now flat and think that on chance that CTAs get long, it’s probably a short.”

Goldman Sachs (NYSE:) said last week crude could peak at $70 to $75 per barrel in the coming months, then slump to $60 in the second half partly due to the relentless surge in U.S. output, which was already at a world record of 12 million barrels per day and could reach 13 million bpd before end-2020.

Source: Investing.com

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