Crude oil has been an odd market of late and that anomaly only grew wider as crude dropped nearly 15% in early May as about 340,000 gallons of crude poured into the Gulf of Mexico each day due to BP’s Deepwater Horizon explosion. Analysts don’t expect crude to move much higher in June, despite the BP explosion.
Dominick Chirichella, founder of the Energy Management Institute, says crude prices were unsustainable and attributes weakness to asset-selling after the EU’s bailout of Greece. “We’re looking at a commodity that is still well over-supplied. Inventories are way above normal, so from a fundamental point of view, it’s still bearish,” he says, adding that uncertainty surrounding the global economic recovery may keep the oil market oversupplied for a much longer period of time.
Phil Flynn, senior analyst at PFGBest Research, says the trillion dollar bailout for Greece had a major impact on the price of oil. “We’ve seen the price of oil be supported by global economic stimulus and low interest rates. Hopefully oil is getting close to its peak,” he says. Flynn, who targets the low to mid $70-per barrel range for crude by mid-June, said that the Gulf spill did not have a major effect on the spot price but caused the contango to widen significantly. On May 10, the differential between the June and July futures contract was $3.72.
Chirichella says, “By [mid-June] we’ll be between $75 and $80, barring anything crazy like early hurricanes.”