Oil: From Bear to Bull

Following its seventh straight day of gains on Friday 19th, Brent Crude hit its highest level post Brexit, only a day after it charged into bull market territory. Factors contributing to this upward outlook include unexpected declines in US stock piles, a weaker dollar making commodities cheaper to foreign currency holders and possible discussions for an output freeze at next month’s OPEC meeting.

Oil’s resurgence is made ever more remarkable given its bounce is only 3 weeks after it fell into bear market territory, falling 20% in a two month period  prior to August 2nd due to a oversupply glut and signs of slowing economies across the globe.

However analysts believe prices could be reaching their upper limits. As oil traders who have over-sold in July have now bought back enough to balance their positions.  

“There has been some pain (in the market) from a big short position which has been growing since early July and has been cut back sharply over the past couple of weeks. This “pain trade” has continued to drive prices higher” said Saxo Bank’s Ole Hansen.

Hansen added “I believe at $50 to $52 per barrel, we’ll reach a top and see some retracement in September. OPEC has got what they’ve asked for: they’ve got prices back up above $50, so any further action from OPEC is unlikely to be seen”.

What the future holds for Oil very much depends on the outcome from Algeria on September 26th, as cracks emerge in the foundations of oil’s current rise above $50. A failure to reach an agreement would signal a dramatic dip in oil prices again.

Picture via flixkr, courtesy of Leonieke Aalders.

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Reuters: Business News