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Crude oil prices failed to sustain their initial rally after Saudi Arabia’s decision to cut production, but Goldman Sachs’ Jeff Currie sees the move as finally drawing down crude oil inventories, sending prices down to $90 before the end of the year.
“You will see significant physical inventory drawdowns due to these OPEC production cuts, especially in Q3 and Q4, (which would push us down to the $90 low),” Currie told Bloomberg this week.
Currie said high interest rates have made it too expensive to keep oil in storage, and investor interest likely won’t return until inventories start to run low.
Focusing on fundamentals, Citi analysts said Saudi cuts are unlikely to sustain gains in the low 80s or 90s, pointing to weaker demand and stronger non-OPEC supply by the end of the year.
Over the course of the week, crude oil prices posted a second straight weekly decline, as more disappointing economic data from China added to doubts about energy demand growth after Saudi Arabia cut alone.
Nymex Crude Oil Delivery Closer Month (CL1: COM) has ended for July delivery -2.2% During the week to $70.17 a barrel, Brent Crude Oil closed for August (CO1:COM) -1.7% to $74.79 a barrel, the sixth weekly loss out of the past eight for both benchmarks.
ETFs: (NYSEARCA: Usage), (BNO), (UCO), (SCO), (DBO), (USL), (DRIP), (GUSH), (USOI), (NRGU)
WTI and Brent both lost more than $3 a barrel on Thursday after reports that the United States and Iran were making progress toward a nuclear deal that would lead to more supplies; Prices recovered some of their losses after both countries denied the report.
The US Department of Energy said late Friday that it plans to do so Buying 3 million barrels of crude oil for the Strategic Petroleum Reserve, where oil is purchased at an average price of about $73 per barrel.
The Energy Department also said it had launched a new order for another 3 million barrels for delivery to SPR’s Big Hill site in Texas for delivery in September.
“Next week will be big for oil,” said Edward Moya of Oanda, as interest rate decisions from the Federal Reserve, European Central Bank and People’s Bank of China should determine the short-term outlook for the global economy.
Despite the decline in crude oil prices, the energy sector (New York: XLE) made gains for the week just ended, +1.8%.
The 5 biggest gainers in energy and natural resources over the past 5 days: (AMTX) + 34.7%(WPRT) +28.9%(CETY) +23.4%(WHD) +14.1%(PBR.A) +13.6%.
The 4 largest losses in energy and natural resources over the past 5 days: (USGO) -17%(AUMN) -13.9%(Wave) -12.8%(BATL) -12%.
Source: Barchart.com