(Crude oil prices story updated for Thursday energy sector trading and earnings)
NEW YORK (
) -- So much for Goldman Sachs bearish calls on commodities. So much for Standard & Poor's slaps on the wrist of the U.S. government for its fiscal management being a harbinger of economic doom. Goldman can tell investors to take commodities profits because speculation has gotten ahead of fundamentals and S&P can cut the U.S. government's credit card in two -- which helps crude oil in the sense that a weaker dollar benefits commodities -- and in the end oil prices keep moving to the upside.
On Thursday, crude oil prices remain near a key technical level from which they last fell after the Goldman Sachs bearish call on commodities.
The price of U.S. crude oil gained $3.17 on Wednesday to settle at $111.45 and on Thursday was more or less flat on a light trading day before the Friday market holiday, ticking up by as much as 0.6% in recent trading. Crude oil surpassed $112 in early trading and was higher than the Wednesday settle in midday trading, at $111.77. Brent crude was close to flat on Thursday as well, near the $124 mark.
On the Monday before Goldman's "sell commodities" call took down crude oil prices on April 12, crude oil had been above $113. Crude oil fell under $106, and all the usual arguments were in play, from demand destruction on the horizon to inventory levels that couldn't justify the high oil prices, yet for energy traders and investors, nothing has changed.
The latest inventory data from the U.S. released on Wednesday once again pushed out the argument about demand destruction, and the fundamental drivers of upside in the oil trade -- a weak dollar, a risk premium in the Middle East and speculation -- remain in place.
"The market totally shook off the Goldman sell signal, and we are seeing it across the board in commodities, with silver cranking to new highs, too. Nothing has changed," said Phillip Silverman of commodities trading firm Kingsview Capital. Silver reached another 31-year high on Thursday and gold remained in the headlines after touching above $1,500 for the first time on Wednesday and moved slightly higher on Thursday.
Oil had gained steadily through the first three days of the week as the dollar declined, U.S. bellwether earnings exceed expectations, the Middle East and Libya remained in flux, and the Wednesday gasoline draw down data was greater than anticipated by the market.
Energy traders said after the Goldman call that there is still upside in the oil trade, yet with the recent back-and-forth action, it's been about picking spots. "People are quick to sell when it gets nervous, but once those guys are gone the market marches right back in. There is plenty of support out there for high oil prices because it's financially driven. We're still at record inventory levels at Cushing. Buy on pullbacks and sell on spikes," Silverman said.
Greg Priddy, an analyst at Eurasia Group, which advises financial firms on energy and political policy, said the risk premium in crude is not something OPEC could do anything about short of flooding the market, and OPEC made clear this week that it has no intention of doing that, and in fact, the economics don't make sense right now for more Saudi crude. The Eurasia Group analyst says that the "Libya + 1" scenario -- referencing the next Mideast nation to fall -- wouldn't change the upside in the oil trade even if OPEC made up for the Libyan market disruption. "The generalized fear of political tumult in the Middle East will continue to play out. Whether it's another $10, $20 or $30, oil prices will be volatile, but upside remains in the short-term headlines."