RBC expert: Oil price increases expected to be subdued despite yesterday's rally

RBC expert: Oil price increases expected to be subdued despite yesterday's rally

25 November 2015, 08:55
Anton Voropaev

On Tuesday, U.S. crude oil prices jumped nearly 3% on geopolitical tensions in the Middle East after Turkey shot down a Russian warplane near the Syrian border.

Meanwhile, the longer-term outlook for oil appears to be less rosy.

On Wednesday oil prices were lower, as U.S. crude oil futures for January delivery traded at $42.87 a barrel, down 0.01%, and Brent futures for January delivery dropped 0.15% to settle at $46.05 a barrel.

Apparently, the decline came in after API data showed major build.

The American Petroleum Institute reported a 2.6 million build in U.S. crude stockpiles last week, far outpacing the 200,000 barrel decline seen. Separately, a closely-monitor government report on Wednesday could show that crude inventories rose by 1.1 million barrels for the week ending on Nov. 20.

Over the next year, oil price increases are expected to be more subdued, barring a supply disruption, Helima Croft of RBC Capital Markets stated in an interview with CNBC.

"You're up against a wall of inventory, that is the problem in terms of moving higher," Croft said.

"Its a recovery, but not a recovery to prices that can keep many Middle Eastern countries flush. Even at a $58 average, so many of these countries are circling the drain in terms of their finances."

With the oversupply that is currently persisting, Croft said there's a sense the world can sustain an outage, making markets less sensitive to growing tensions in the Middle East, even as countries like Turkey, Syria and Tunisia are having disturbance.

Croft also said the potential for the so-called Islamic State to attack energy facilities in Saudi Arabia is not something to just skip.

"If you have something major in Southern Iraq, something major in the eastern provinces of Saudi — that will take you materially higher," Croft said.

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