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Oil Bulls Look Beyond $70 After Strong U.S. Jobs; Shale Still in Focus

Published 04/05/2019, 01:32 PM
Updated 04/05/2019, 04:10 PM
© Reuters.

By Barani Krishnan

Investing.com - There may not be too much to worry about the U.S. economy with the resurgent jobs growth in March, but oil bulls will have to keep their sights on shale output to ensure it doesn't unravel their "Up, Up and Away!" theme for crude prices.

London-traded Brent crude, the global benchmark for oil, once again breached the $70 per barrel mark on Friday which OPEC kingpin Saudi Arabia has set as its first price target from the production cuts carried out this year. Brent reached as high as $70.47 a barrel before settling 94 cents, or 1.4%, up at $70.34.

New York-traded West Texas Intermediate crude finished the official trading session up 98 cents, or 1.6%, to $63.11 per barrel.

The price boost came as U.S. nonfarm payrolls data showed a surge in job creation last month.

But it also persisted despite the weekly U.S. rig count published by industry firm Baker Hughes showing its first surge in oil rigs in seven weeks -- not good for hedge funds betting on the number to continue ticking lower. Baker Hughes reported a 15-unit climb this week to 831 rigs.

With Friday's settlement, crude prices have rallied for a fifth straight week.

Year-to-date, WTI is up about 39% and Brent is nearly 31% higher. Outside of crude, the energy star has been gasoline, rising 49%, while heating oil, a proxy for diesel and other transportation fuels, has gained 22%. AAA's Daily Fuel Gauge Report shows U.S. retail prices up about 20% this year with the national average at $2.727 a gallon.

Responsible for two of the biggest oil price crashes of the past five years due to its prolific output, shale had been showing signs of slowing over the past month despite the Energy Information Administration (EIA) announcing on Wednesday a new record high production of 12.2 million barrels per day in U.S. crude last week.

Weakening signs in U.S. production have been a further boon to Saudi Arabia's strategy of bringing oil prices back from the 40% crash in the fourth quarter of 2018. Since December, the Saudis have embarked on aggressive production cuts with their allies in OPEC, as well as 10 other oil producing countries led by Russia.

President Donald Trump, who's against any big rally in oil for fear of their impact on pump prices ahead of next year's U.S. election, has ironically helped the Saudi campaign with his administration's sanctions on Iranian and Venezuelan oil that have further tightened the market.

Some cheerleaders of the oil rally have suggested in recent days that investors may be having second thoughts of overextending the market after EIA data Wednesday showing a crude inventory build of 7.2 million barrels last week.

While that build came from issues at the Houston Ship Channel last month that slowed U.S. oil exports, a few analysts prodded for a closer inspection of oil's fundamentals.

"While the fundamental picture is still very bullish, the market wants more information before they take prices to the next level," said Phil Flynn, senior energy analyst at the Price Futures Group brokerage in Chicago.

Petromatrix, an oil consultancy in Zug, Switzerland, said the technicals for crude also looked suspect after the race in Brent prices this week past its 200-Day Moving Average.

"We actually find the current technical action too clean and that does not play in favor of holding open interest," it said. "Money managers are holding a considerable amount of length in crude oil futures and will be disappointed if they cannot find fresh buying interest above $70 Brent."

Latest comments

oil go to 60.00
i wont oil trune off
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