Oil price posts two-year highs - but how long can it last?

Oil falls as investors cash in on last three weeks of gains

25 April

Oil prices fell today, with analysts saying investors are cashing in after three weeks of gains.

The upswing in recent weeks, after dramatic low prices in February, came amid hopes the market is finally rebalancing after a two-year downward spiral. Today, it seems investors feel now is the time to claw back some profit.

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At 10.30am UK time, Brent crude was down 51 cents on its last closing price, at $44.60 a barrel. In the US, West Texas Intermediate (WTI) futures were down 63 cents to $43.10 a barrel.

Virendra Chauhan, of Singapore-based Energy Aspects, told Reuters there had been "some profit taking after a strong rally into the end of last week".

Commerzbank agreed in its daily note: "Speculative financial investors are likely to take advantage of this opportunity to take profits after prices rose last week to four-and-a-half month highs, mainly thanks to their own actions."

Today's downturn comes after gains early this morning in Asia, says MarketWatch, where the warm glow prompted by an intervention from the International Energy Authority (IEA) was still being felt.

Speaking in Tokyo on Thursday, IEA head Fatih Birol predicted oil production by non-Opec nations will decrease by 700,000 barrels a day this year, easing the global oversupply which has driven prices down.

Giving still more reason to be bullish, Birol added: "At the same time, global demand growth is in a hectic pace, led by India, China and other emerging countries." The price of oil rose after his intervention: on Friday morning, Brent was up 35 cents and WTI had risen 51 cents.

Over the whole of last week, prices were up around five per cent: enough for traders to cash in today.

Shandong-based analyst Gao Jian told MarketWatch: "Prices are down [today] on profit-taking." Looking ahead, he predicted: "Without any major news or catalysts, prices are going to seesaw in the near term."

Oil price rises again as investor confidence grows

25 April

The price of oil rose again today as investors grew more confident the commodity, which is suffering a two-year decline, will rebalance in the coming months.

Brent crude was up 35 cents from its last close at $44.88 a barrel at 8.13am UK time, while in the US, West Texas Intermediate (WTI) futures had risen 51 cents to $43.69 per barrel.

The price of oil fell late last night, partly because industrial action in Kuwait which would have reduced the global oversupply was called off earlier this week. However, a weakening dollar early this morning helped it back up again.

According to Reuters, the entire commodity complex has become more confident, with investors seeing signs of recovery. Brent has risen by 4.5 per cent so far this week and WTI by eight per cent. Both are "on track for a solid price rally", adds the news agency.

Traders are optimistic because of declining US production, says Nasdaq. The price collapse of the last two years has decreased investment in oil production, particularly in US shale oil, which is relatively expensive to extract.

Fatih Birol, of the International Energy Agency, said yesterday he believes US shale oil production will decrease by 700,000 barrels a day this year, good news for anyone concerned by the global oversupply which has driven prices down.

US production will recover eventually, he added, but supply from other non-Opec producers, such as Russia, China, Mexico and Colombia, will fall as investment in production has eased off in those countries during the slump.

Birol predicted the oil market would rebalance over the next two years. "We can expect the market to come back to balance in 2017. From 2018 onward there will be stock draws, leading to a gradual increase in price levels," he said.

Not everyone is so optimistic. At Forbes, Brett Owens predicts the price of oil will "quite soon" plummet by 30 per cent.

Owens points out that "money managers have quadrupled their bullish bets on oil to more than 200,000 contracts" in the past three months.

They haven't been "this bullish" since July 2015, he says, and that preceded a 50 per cent price drop.