Investing.com - "It ain't over till it's over."
Yogi Berra's celebrated quip on baseball and life rang true for the oil market after a two-day rally and run to $55 per barrel on U.S. crude was cut short by EIA data that essentially showed the agency underestimated the highs in domestic production.
President Donald Trump's less-than-optimistic comments on the ongoing U.S.-Sino trade talks in Washington also weighed on the market, as a deal to avert the trade war between the two economic superpowers is viewed as critical for global growth. Trump said on Thursday he probably would have to meet his Chinese counterpart Xi Jinping again face to face to clinch a deal.
While New York-traded West Texas Intermediate crude did end with its best January on record as trading closed for the month, Thursday's sudden reversal sounded yet another ominous warning to OPEC to beware of shale, as it could always catch up with you.
WTI settled down 44 cents, or 0.8%, at $53.79 per barrel, after reaching a 10-week high of $55.37. But for the month, it rose 18.5% for its best advance since April 2016. According to Reuters, that near-19% gain also made it WTI's best January on record.
Brent, the global oil benchmark, slid by 61 cents, or 1%, to $60.93 by 2:40 PM ET (19:40 GMT) after a session high at $62.47. Brent was on pace to rise 15% in January, also the best monthly gain since April 2016.
The EIA's latest estimate on oil production issued on Thursday showed that U.S. output had probably reached 11.9 million barrels per day as of November. In its Short-Term Energy Outlook report issued two weeks ago, the agency had that same number as an estimate that will be achieved this month. The revised outlook now means that the next STEO report will be likely be much higher. The EIA has a 13 million bpd target for 2020.
"This only tells us of the dynamics of shale," said John Kilduff, founding partner at New York-based energy hedge fund Again Capital. "Underestimation is becoming a running narrative in the shale story.”
Kilduff added that while U.S. drillers may be talking about reductions in capital expenditure now, "WTI above $55 is a very powerful enticement for them to hedge and add to production. Last week’s upturn in the rig count after the slump the week before is very telling of the dynamics in this industry.”
The number of rigs actively drilling for oil in the United States rose last week by 10 after slumping by 21 just a week earlier. The next rig count number will be published by oil services firm Baker Hughes on Friday.
WTI and Brent logged gains of about 4% in two previous sessions. The run-up began with the Trump administration's sanctions against Carasas' state-owned oil firm PDVSA which effectively halts the flow of Venezuelan crude, a heavy sulfur-laden grade that's critical for making diesel and other transportation fuels, to the U.S.
The rally accelerated on Wednesday after weekly U.S. oil data showed a drop of 1.1 million barrels in Saudi exports of crude to the United States, in keeping with Riyadh's promise since December to cut production to boost prices that crashed 40% in the fourth quarter of 2018.
Oil picked up steam in Wednesday's after-hours trade as the Federal Reserve held rates steady at its monthly policy meeting. Fed Chairman Jerome Powell, who oversaw four rate hikes last year, says now he will consider the economy first before any tightening. That was called the Powell Put on Wall Street, or action by the Fed to prevent equities from dropping too much (after the similar Greenspan Put during the '90s). Powell actually denied there was such a thing at his press conference.