Crude Off Lows but Consolidating As Risk Rally Stalls By

4 mins read
© Reuters.

© Reuters.

By Geoffrey Smith — Crude oil prices were broadly lower on Monday in mid-morning trade in New York, albeit off their intraday lows, as the near-term challenges of the pandemic and doubts about the speed and scale of U.S. fiscal stimulus tempered the optimism that drove last week’s rally. 

By 11 AM ET, U.S. futures were down 0.3% at $52.07 a barrel, while crude, the international benchmark, was down 0.8% at $55.56 a barrel. 

U.S. were down 1.6% at $1.5177 a gallon.

Crude prices had hit their highest level since February last week, with an 8% gain, as participants bet on an unconstrained Democratic Congress in the U.S. enacting a raft of stimulus policies that should support demand. That was coupled with the surprise announcement by Saudi Arabia of a unilateral cut of 1 million barrels of oil a day for two months from the start of February, which the Desert Kingdom followed up by raising its official selling prices later in the week. 

The Saudi actions will have a palpable effect of tightening the current supply-demand balance, forcing refiners to draw on stockpiles that are now fast returning toward historical averages. Goldman Sachs (NYSE:) analysts reportedly predicted crude futures could hit $65 later this year as that tightening process plays out. 

Even so, there are indications that the rally is losing steam. The net speculative long positions of traders in crude futures, as measured by the Commodity Futures Trading Commission, rose only modestly in the week through January 5th, with fund managers increasingly inclined to take short positions. The data predate the Saudi announcement, but still reflect a view that prices had gone ss far as current fundamentals allow. Lockdowns of varying degrees continue to weigh on most of Europe and the U.S., and have even returned to China in response to a flurry of Covid-19 cases in the Hebei province near Beijing. 

According to the Associated Press, parts of the province are under lockdown and interprovincial travel has been largely cut off. The cities of Shijiazhuang and Xingtai have ordered millions tested, suspended public transportation and restricted residents to their communities or villages for one week.

Elsewhere in energy markets, the most dramatic action is in liquefied natural gas. Prices in the key north Asian market have spiked to record levels as a cold snap across China, Japan and the Korean peninsula has pushed spot demand sharply higher. 

Price reporting services indicated that the benchmark Japan Korea Marker price had surged to over $28 per million British thermal units (mmBtu). Prices had fallen below $2 per mmBtu as recently as May, at the depths of the collapse in global energy demand due to the pandemic. 

However, the cold snap appears to have had little supporting effect on North American natural gas futures. The price was down 1.4% at $2.66/mmBtu and still well within a downward price channel stretching back to late October.