By Barani Krishnan
Investing.com - Are oil bulls missing the next shoe to drop on the market?
Crude prices rose as much as 8% in February, extending their gains from January's rally.
But on the final session of the month, some traders and investors appeared to be doubting the sustenance of the market's strong performance thus far for 2019 as New York-traded West Texas Intermediate crude settled up on benign U.S. GDP data while London-trade Brent, the global oil benchmark, fell.
WTI finished Thursday's trade up 28 cents, or 0.5%, at $57.22 per barrel. The gains came on the back of U.S. gross domestic product data, which showed a seasonally-adjusted annual growth of 2.6% in the fourth quarter, in line with expectations, but down from a Q3 rate of 3.4%. WTI was up 6.4% for the month, its second monthly gain in a row.
On Wednesday, WTI jumped 2.6% after the latest weekly energy data from the U.S. Energy Information Administration showed a phenomenal slump in domestic crude inventories that validated OPEC's production cuts. The producer group's defiance of U.S. President Donald Trump's bid to make it ease up on production cuts also boosted the market.
Brent slipped by 25 cents, or 0.4%, to $66.63 per barrel by 2:37 PM ET (19:37 GMT). For the month, it was up nearly 9%.
Both WTI and Brent are up more than 30% from Christmas Eve lows and around 25% higher for 2019. OPEC production cuts announced on Dec. 7 were out carried in earnest from the start of January.
Despite the rally, there was a gnawing feeling among some in the market that the run-up might not last, given the lack of supportive factors (or dark forces not yet evident).
Scott Shelton, energy futures broker at Durham, N.C.-based ICAP (LON:NXGN), one of the more pragmatic bulls in the market, was most vocal about it in his daily note on Thursday, urging the rest of the pro-oil crowd to think of the unknowns out there.
"Yesterday’s statistics were quite the shocker for most as the crude draw was far in excess of expectations with a massive drop in imports," said Shelton, referring to the stockpile drop of nearly 9 million barrels announced by the EIA for the week Feb. 22, compared to forecasts for a build of 2.84 million.
Pursuant to the EIA data, the broker said oil bulls had embarked on more fanciful stories of Saudi Arabia cutting crude exports to the U.S. to zero.
"I feel like I have mental block on being bullish," Shelton said. "Perhaps it’s because the WTI contract is up 25% YTD, but the S&P is up 12% YTD and XOP is only up 13%. I don’t see the investor push into oil like I have seen in other bull markets. They are making statements like 'heck Scott, I am better off trading tech and cannabis stocks, I don’t see a story' in oil."
He added that there were no huge investments made into the market these days similar to the billions once ploughed by perma-bulls like hedge fund supremo Andy Hall of Astenbeck.
Shelton also contended there was "plenty of oil" in the market despite the OPEC cuts, language that not many oil bulls would like.
"Therefore I don’t see the physical traders driving this market higher either. I see this market as once very short from the CTAs and now flat and think that on chance that CTAs get long, it’s probably a short."
Goldman Sachs (NYSE:GS) said last week crude could peak at $70 to $75 per barrel in the coming months, then slump to $60 in the second half partly due to the relentless surge in U.S. output, which was already at a world record of 12 million barrels per day and could reach 13 million bpd before end-2020.