Oil to Stay Flat This Week Unless Iran Surprises: Survey

Sri Jegarajah|Reporter, CNBC Asia Pacific
Sunday, 15 Apr 2012 | 11:30 PM ET

Benchmark U.S. crude futures will likely remain flat this week with the bias suggesting weaker prices ahead unless headlines on Iran’s nuclear program renew fears of supply risks, CNBC's weekly survey of market sentiment showed.

Getty Images

China's announcement on Saturday to double the size of its currency-trading band, may emerge as a supportive theme this week though oil prices in the Asian session are shrugging off the news and reacting instead to Friday’s lower-than-expected quarterly China GDP data and a weaker Wall Street.

“It seems like China isn't worried enough about growth to refrain from widening their band,” GFT Forex Director of currency research firm Kathy Lien said on Twitter Monday.

Less than 50 percent, or six out of 13 respondents, polled in a weekly CNBC poll of analysts and traders, expect oil prices to remain steady this week. Four respondents believe prices will fall while three expect a rise.

“If tensions with Iran cool somewhat, I would anticipate the focus shifting to the improving supply/demand balance and we could see a strong move to the downside over the next several weeks,” said Kirk Howell, Chief Operating Officer, of SunGard's energy and commodities business, SunGard Kiodex.

U.S. crude futures firmly held support levels of $100 a barrel last week despite a report from the International Energy Administration noting that the oil market has broken a two-year cycle of tightening supply.

Front-month U.S. light, sweet crude settled at $102.83 a barrel, down 81 cents, or 0.78 percent on Friday. For the week, crude dropped 48 cents, or 0.46 percent, after ending up at $103.31 in the week to April 4. Front-month crude has fallen in four of the last five weeks.

Front-month London Brent crude settled at $121.83, up 12 cents, or 0.10 percent on Friday. For the week, Brent fell $1.60, or 1.3 percent, after closing higher at $123.43 in the week to April 4.

Clayton Williams Energy CEO on Oil Prices
As crude prices remain around $102, what's the long term outlook for the oil trade? Clayton Williams, Clayton Williams Energy CEO, weighs in.

U.S. government data showed crude stockpiles rose for the third straight week while Saudi Arabia’s oil minister Ali Al Naimi reiterated that there were no supply shortages in the global oil market and the kingdom stood ready to deploy its spare capacity of 12.5 million barrels a day if more crude was needed.

Jeremy Friesen, Hong Kong-based Commodity Strategist at Societe Generale, however, said “oil markets remain fairly tight, especially given weaker demand from refinery maintenance season.” He added stocks in OECD countries “are still tight outside the U.S., with Iran sanction pressure and minor disruptions continue to support prices.”

Hurting cyclical commodity markets and sentiment more broadly last week, China’s economy expanded at 8.1 percent in the first-quarter from a year earlier, representing a three-year low, while U.S. consumer sentiment slipped modestly in early April as higher gasoline prices hit household budgets, a survey released on Friday showed.

“I’m surprised given the improving supply picture and the economic data out of the U.S., Europe and particularly China that WTI did not strongly test $100” last week, Kiodex’s Howell said. “This leads me to believe eyes are still fully trained on geopolitical risk from Iran and trying to guess central banks next moves.”

Iran’s the Wildcard

Weekend talks between Iran and international powers over Tehran's nuclear program were largely inconclusive and negotiations will go into a second round on May 23 in Baghdad.

Israeli Prime Minister Benjamin Netanyahu's government believes Iran will use the interim period to continue working on its program to enrich uranium to weapons-grade standards. "My initial impression is that Iran has been given a 'freebie,' " Netanyahu said on Sunday. "It has got five weeks to continue enrichment without any limitation, any inhibition."

Commenting on Friday before the talks wrapped up, Excel Futures’ Mark Webber said “if an agreement is made, look out below. If Iran walks from the table we may add $5.00. My bet is lower… $98.00 or so.”

Sandy Jadeja, Chief Technical Analyst at City Index, said the charts are also suggesting a drop to $98 a barrel. Jadeja said he remains “bullish short term above $98” but the intermediate trend remains bearish so “watch for sharp reversals.”

Another developing theme last week was the widening of Brent's premium against U.S. crude, which expanded on Friday to $19, from $18.07 on Thursday. Navitas Resources’ Tom James and Cumberland Advisors' David Kotok noted that the spread between Brent and U.S. crude futures could widen further. U.S. crude's discount to Brent hit a record near $28 in October.

“I am neutral on WTI but supportive to bullish on Brent crude… so thinking that the arbitrage of WTI to Brent may widen a bit as a result. Brent’s looking stronger with $120 offering some good support,” Navitas Resources’ James said.

Late March, Enbridge and Enterprise Products Partners announced that they will more than double the capacity of the Seaway Pipeline, easing a major oil glut in the United States that has led to an unprecedented distortion in crude markets, Reuters reported.

The companies are racing to unlock a glut of crude in the U.S. Midwest, which has built up over the year due to rising supplies from Canada and North Dakota. The ballooning inventories at Cushing, the storage hub for U.S. crude oil traded on the futures market, has led to a greater price difference between U.S. crude and the European benchmark Brent, Reuters reported.

“Brent should be supported into 2H with reversing of the Seaway pipeline in June likely to help narrow the WTI discount and help WTI rise towards Brent prices,” Societe Generale’s Friesen noted.

Goldman Sachs last Tuesday forecast the spread could narrow in the second half of the year as the reversal of the Seaway pipeline alleviated a glut of crude in the Midwest.


  • Pump jacks and wells are seen in an oil field on the Monterey Shale formation where gas and oil extraction using hydraulic fracturing, or fracking, is on the verge of a boom, March 23, 2014 near McKittrick, California.

    Brent crude futures turned lower after Russia said top diplomats have agreed to take immediate steps toward calming tensions in Ukraine.

  • An employee wipes a TV screen in a shop in Moscow, on April 17, 2014, during the broadcast of President Vladimir Putin's televised question and answer session with the nation.

    Russian President Vladimir Putin warned of possible disruption to Europe's gas supply on Thursday, as the U.S. confirmed it would send additional military support to Ukraine.

  • A former BP employee will pay to settle allegations of insider-trading during the 2010 Deepwater Horizon oil spill.

  • Pro-Russian activists seized the main administration building in the eastern Ukrainian city of Donetsk.

    Deadly clashes in eastern Ukraine have spiked fears of all-out war in the region. So who are the armed, flag-waving rebels who appear to be behind it all?

Contact Energy


    Get the best of CNBC in your inbox

    › Learn More