Technical & Fundamental Oil Reports Specialists

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Oil rally a response to supply not demand

Published Wednesday, February 4th, 2015

Oil prices had a third day of significant gains. Brent closed $3.16 bbl higher at $57.91 bb bringing the total three day gain to $8.78 bbl. Last night’s settlement price was 28% higher than the intra-day low of 45.19 bbl hit on Jan 13. WTI gained $3.48 bbl to close at $53.05 bbl, a 22% gain on its intra-day low of $43.58 bbl touched on Jan 29.

The rally has been entirely supply led, is entirely anticipatory and therefore entirely speculative. Cuts in the US drilling rig count and a stream of investment cutback announcements are lead indicators of a fall in future supply growth. This has frightened the shorts and wetted the appetite of those who have been looking for a bottom. Momentum and technicals have done the rest. A little extra juice was added yesterday by a weakening dollar.

You might have imagined that rallying oil prices would be seen as negative for global economic growth and therefore equities. There was no time for such thoughts yesterday. It was a day of gains for European and US stock markets helped by signs that the new Greek leadership may be moderating its demands on debt forgiveness. Equities have ECB QE to look forward to, the inevitability of another set of stimulus measures from China following January’s poor PMI numbers and a Federal Reserve that will be patient about rising interest rates.

to read the rest of the report, please click here

Posted by David Hufton