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Crude oil prices failed to sustain their initial lift following Saudi Arabia’s decision to cut production, but Goldman Sachs’ Jeff Currie sees the move eventually prompting a draw in crude inventories, sending prices into the low $90s before the end of the year.
“You’re going to be seeing substantial physical inventory draws because of these OPEC production cuts, particularly in the third and fourth quarter, [which will] push us up into the low $90s,” Currie told Bloomberg this week.
Higher interest rates have made it too expensive to keep oil in storage, and investor interest likely will not return until stockpiles start to decline, Currie said.
Focusing on the fundamentals, analysts at Citi said the Saudi cuts would be unlikely to sustain a gain into the high $80s or low $90s, pointing to lackluster demand and stronger non-OPEC supply by year-end.
For the week, crude oil prices posted their second straight weekly decline, as more disappointing economic data from China added to doubts about energy demand growth after Saudi Arabia’s go-it-alone cut.
Front-month Nymex crude (CL1:COM) for July delivery ended -2.2% for the week to $70.17/bbl, and August Brent crude (CO1:COM) closed -1.7% to $74.79/bbl, the sixth weekly loss out of the past eight for both benchmarks.
ETFs: (NYSEARCA:USO), (BNO), (UCO), (SCO), (DBO), (USL), (DRIP), (GUSH), (USOI), (NRGU)
WTI and Brent both lost more than $3/bbl Thursday following reports the U.S. and Iran were making progress toward a nuclear deal that would result in more supply; prices recouped some of their losses after both countries denied the report.
The U.S. Department of Energy said late Friday it plans to buy 3M barrels of crude oil for the Strategic Petroleum Reserve, with the oil being purchased for an average price of ~$73/bbl.
The DoE also said it launched a new solicitation for another 3M barrels for delivery to the SPR’s Big Hill site in Texas for September delivery.
“Next week will be big for oil,” as interest rate decisions from the Federal Reserve, the European Central Bank and People’s Bank of China should determine the short-term outlook for the global economy, Oanda’s Edward Moya said.
Despite lower crude prices, the energy sector (NYSEARCA:XLE) sported a gain for the week just ended, +1.8%.
Top 5 gainers in energy and natural resources during the past 5 days: (AMTX) +34.7%, (WPRT) +28.9%, (CETY) +23.4%, (WHD) +14.1%, (PBR.A) +13.6%.
Top 4 decliners in energy and natural resources during the past 5 days: (USGO) -17%, (AUMN) -13.9%, (WAVE) -12.8%, (BATL) -12%.
Source: Barchart.com