Energy

US crude is heading back into the mid-$50s, says the man who called oil's 2018 top

Key Points
  • Oil prices are poised for a sharp drop into the mid-$50 per barrel range, says John Kilduff, partner at energy hedge fund Again Capital.
  • Dollar strength is exerting pressure on crude oil, but in the longer term, the supply dynamics are working against a sustained price rally, he says.
  • Kilduff correctly called the 2018 top for crude oil prices.
Oil expert sees WTI falling to mid-$50s. Here's why
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Oil expert sees WTI falling to mid-$50s. Here's why

U.S. crude oil is poised for a rapid decline into the mid-$50 per barrel range, according to John Kilduff, founding partner at energy hedge fund Again Capital.

U.S. West Texas Intermediate crude fell below $61 on Thursday, nearly wiping out the year's gains and extending an oil price rout into a fifth day. Rising U.S. oil production and crude stockpiles, as well as a stock market sell-off, heaped pressure on oil prices this week. A stronger dollar has also been a prevailing factor the decline.

"Crude oil prices have gotten knocked around by the dollar for the better part of two months now," Kilduff told CNBC's "Squawk Box" on Thursday.

He noted that the inverse relationship between oil prices and the dollar — where one rises as the other falls — doesn't always hold but has recently reasserted itself.

"The dollar index got down to 86 [cents], crude got to $66," he said. "[The] dollar index is now back over 90, crude's back down around $61, ready to break and I think fall back down into the mid-$50s here fairly rapidly."

Early this year, Kilduff forecast that Brent crude would top $70 a barrel one week before it hit that level, ultimately stalling at $71.28. He projected U.S. crude would break into the $65-$67 range three weeks before it hit a three-year high of $66.66.

On Wednesday closely followed investor Leon Cooperman said U.S. crude could hit $70. Kilduff disagreed on Thursday, saying supply dynamics are still working against the oil market.

OPEC has successfully shrunk brimming crude stockpiles by partnering with Russia and other producers to limit supply, but Kilduff says top exporter Saudi Arabia has carried most of the burden in that deal. And while the Saudis are cutting crude oil exports, producer nations are shipping out more refined products like gasoline, he said.

Luck has also played a part in OPEC's success, he added, noting there were significant pipeline outages in the U.K. North Sea and the Western United States late last year. The market would need another outage of "real significance" to boost prices much higher, and Venezuela's long output decline looks like it's bottoming out, Kilduff said.

At the same time, U.S. drillers have gobbled up a bigger share of the global export market.

"We actually exported crude oil to the United Arab Emirates last week, if you can believe that," he said. "It shows you how we are penetrating markets in India, China — much to the chagrin of the Russians, much to the chagrin of the Iraqis and Iranians, too," he said.

In Kilduff's view, surging U.S. production will block WTI from rising much higher. American output in November rose above 10 million barrels a day for the first time since 1970 and has now surpassed Saudi production.