Featured | 4 years ago

Analysts Fear Surplus as Oil Reaches Three-Month Peak

Brent crude oil prices rose to a three-month high on Monday, continuing a win-streak that have propelled crude related benchmarks by over a third from low points seen earlier this year. The rebound is due partially to a generally enhanced perception of the global market and an increasingly strong desire for international economic recovery.

In January, front-month Brent crude future prices fell to nearly 13 year lows. However, prices on Monday rose to a high point not seen in the last 4 months. The increases were powered in part by an uptick in Asian shares to a two-month peak. In addition, energy companies in the United States reduced their number of oilrigs for the 11th straight week to reduce the number of rigs to the lowest point in over 6 years. Despite the promising results seen lately, oil price analysts are still anxious of the notion of the excess supply of physical oil driving the price back down. Norbert, Ruecker, head of commodities research at Julius Baer, shared his thoughts on the recent rebound in oil prices, “The past days’ oil price rally was from our perspective less related to a shift in fundamentals but a recovery of sentiment.” Ruecker went on to state that he did not believe that the recent rise in prices was not indicative of a full recovery in the long-term.

China implemented a limit on the amount of energy they can consume by 2020, which is the first time the nation has made such a decision. The National People’s Congress commences its yearly session this week, as the recent announcement has created uncertainty surrounding the nation’s consumption growth. Some analysts of the oil market have pointed to data that infers the recent surge could be nearing its conclusion. Meanwhile, separate analysts have come out saying that the rally could lead to U.S. shale producers adding to their number of oilrigs as a means of protecting their production.

Bjarne Schieldrop, chief commodities analyst at SEB, gave his view on how recent oil movement could affect the rig count, “We are now getting very close to where we could see the rig count ticking higher…You’re going to have some headwinds in the oil price as soon as you see the rig count increase.”

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