(Bloomberg) — Oil retreated further from recent multi-year highs after technical indicators showed crude rallied too far too fast.
Futures in New York fell toward $64 a barrel on Tuesday in choppy trading after surging to the highest intraday since 2018 on Monday. Prices rose above the Upper Bollinger band during the last three sessions, signaling a pullback was in store. Meanwhile, OECD forecasts for this year and next suggest some European economies won’t make up lost GDP in 2022.
“We’re seeing some continued profit-taking off those highs,” said John Kilduff, a partner at Again Capital LLC. “Europe’s not helping in terms of the demand outlook, adding some bearish inputs for the petroleum complex.”
Crude had started the week strongly after an attack on a major Saudi Arabian crude export terminal. While a technical dip was expected in the short-term, OPEC+ output cuts are seen holding the market over until demand comes back in force. Standard Chartered Plc said the producer group’s supply restraint will likely even overtighten the market.
Further price gains from output cuts “have pretty much run their course,” Doug King, RCMA Group Chairman, said in a Bloomberg Television interview. “You can tighten as much as you want, but if you destroy the refining margins and product demand isn’t there, then effectively you don’t really get much further up the chain.”
In the U.S., crude inventories are expected to rise for a third straight week, according to a Bloomberg survey. Gasoline and distillate stockpiles are seen decreasing. The industry-funded American Petroleum Institute will report its supply tally later Tuesday ahead of U.S. government data on Wednesday. Meanwhile, fuel demand in California — the biggest American state — is picking up.
In the U.S. shale patch, Chevron Corp. plans to ramp up investment in the Permian Basin through 2025, reversing the pandemic-driven production decline, the company said in an investor presentation Tuesday. In its monthly short-term outlook report, the U.S. Energy Information Administration raised its domestic oil production forecast to average over 12 million barrels a day in 2022, growing faster than previously expected.
The EIA outlook also said crude prices should decline next year, with “global oil supply surpassing oil demand during the second half of 2021.” While the agency raised its Brent price forecast to $58.51 a barrel in 2022, it sees the benchmark falling from a 2021 average of $60.67 a barrel.
“I wouldn’t rule out some more pullback,” said Vandana Hari, the founder of Vanda Insights in Singapore. “A settlement above $69 for Brent, even after the surprising OPEC+ decision, seemed like an over-reaction.”
Heavy maintenance work on North Sea oil fields is helping erode the flow of crude to Asia from some suppliers in the Atlantic basin as a key price spread between the two region balloons. North Sea supplies will be significantly constrained throughout the second quarter by routine maintenance programs.
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