US crude oil inventories have fallen for the second consecutive week, by 2.1mln (bbls) – nearly twice as much as the projected 1.2mln decline, yet oil continued to hover around the $60 mark this week, closing yesterday at a bullish $59.65.
This price rally happened in spite of weak fundamentals and lower than expected global demand. “The International Energy Agency lowered its global oil demand forecast (again), now projecting a 3% decline to 82.3 million barrels per day in 2009 – the steepest fall since 1981,” said Jens Zimmermann, global private client’s equity analyst at ABN AMRO.
Although US crude imports edged up by 83,000 b/d to 8.791 million b/d, this remains an exceptionally low level of imports – especially given that the US is currently refilling the Strategic Petroleum Reserve (SPR), the federal government’s safety-net stockpile, explained Linda Rafield, Platts senior oil analyst.
“Another 700,000 barrels of crude were deposited into the SPR the week ending May 15th, however, import levels should rebound shortly as the narrowing of the price spread in the nearby oil futures contracts will provide the incentive to land floating storage,” she added.
Explaining oil’s bullish week Zimmermann said that the recent oil price move back towards $60 has been largely driven by rising sentiment in equity markets, but not by improving fundamentals in the near-term physical market.
Implications:
This paints a complicated picture for forecasting oil price movement in the weeks ahead. Despite a rally in the second half of May, weak demand forecasts and bearish supply signs, such as declining rig count activity (North American rig activity has plummeted 59% from the top in 2008) suggest a lower price territory is more likely than any immediate rise.
“The short-term uptrend of the oil price is part of a weekly counter trend move with strong resistance levels in the $61 – $65 price zone. As oil is close to this zone, a sudden downside move becomes highly possible because more selling pressure should be expected,” said Zimmermann.
In the integrated oils market Chevron, Royal Dutch Shell and Total all have “buy” ratings from ABN AMRO’s May 20th equities research note, and from the oilfield service sector Halliburton achieves a “recommended list” status whilst Schlumberger tops the chart with a “buy” recommendation.
