Oil prices feel more downward pressure
Oil prices slid further Thursday, languishing below $46 a barrel after its plunge the previous day amid rising U.S. fuel stockpiles.
Market observers pegged Wednesday’s 5 percent dive on the unexpected rise in oil and gasoline storage tanks, which overshadowed tensions in the Middle East, the attack in Iran and disastrous economic conditions in Venezuela, an OPEC producer. Crude lost another 8 cents Thursday to settle at $45.64.
But some analysts note that even over the past few weeks, with U.S. oil inventories steadily declining —a bullish new development — oil prices had trouble staying above $50 a barrel for long. They’re beginning to interpret the bearish sentiment as a broader message about increasing oil production in U.S. shale plays.
“If the market’s telling you anything, it’s saying, ‘E&P guys, slow down,’ ” said David Pursell, an analyst at investment bank Tudor, Pickering, Holt & Co. “In-
vestors are more worried about whether the market can absorb this slug of growth from U.S. shale.”
Tudor Pickering projects U.S. oil production will grow by 1.2 million barrels a day in 2018. But would the market prefer something more like growth of 800,000 barrels a day? “A lot,” Pursell said.
At this point, with U.S. oil production growth already baked in for 2017, it would take a sustained drop in oil prices in the range of $40 to $45 a barrel to slow next year’s gains, the analyst said.
“That $10 makes a big difference,” he said.
In a note Thursday, Tudor Pickering analysts said the firm’s investor clients have become decidedly more bearish amid concerns about tepid demand for fuel and rising supplies.
“Most investors feel like crude may need to breach $45 a barrel for an extended period of time to force operators to pump the brakes on growth,” the analysts said.
Tudor Pickering still believes stockpiles of oil in the U.S. will return to “normal” levels by year’s end.
“You’ll continue to see better inventory trends, and that will put support under the market,” Pursell said. “But that may only keep prices from falling. The question is, what makes it go up?”