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Shorts scramble to cover

Published Tuesday, February 3rd, 2015

Oil had another good day. After closing $3.86 bbl higher on Friday, Brent added another $1.76 bbl yesterday to close at $54.75 bbl. During the course of the day Brent touched a high of $55.62 bbl. WTI added $1.33 bbl to close at $49.57 bbl. For the record Friday’s closing gain on Brent was the largest one day absolute rise since January 2013 and largest percentage gain since April 2009.

From a technical perspective at last night’s close, the gains have taken four of the oil contracts above their 34 day moving average (M/A) and makes shorting the market a dangerous proposition. As we write Brent is up another $2 bbl and WTI has also broken above its contract and continuation 34 day M/A as shorts scramble to cover.

From a fundamental perspective price is performing its role in encouraging demand and discouraging supply. On the supply side, whilst there is no evidence yet of production slippage, there is plenty of evidence of expenditure and investment cutbacks that will affect supply in the future. The market is particularly excited by the fall in the drilling rig count in the US and the fact that it has fallen 24% in the last four months from a high of 1609 to 1233.

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Posted by David Hufton