Are we seeing the second ’next fool’ rally in oil in three months?
Judging by the clearly apparent market realities, the answer would have to be yes.
In May and June prices ran up and continued climbing peaking well above $US50 an ounce, despite the much boomed OPEC production freeze story vanishing when the Saudis and Iran killed it off.
Prices then fell well under $40 US a barrel, only for some production blips in Nigeria and Libya, and then more talk of an informal OPEC meeting at an energy conference in Algeria next month, which was then given credence by the newish Saudi Energy Minister making apparently supportive comments.
So prices surged, and despite a steady build up in US oil rig use and no sign of a dramatic fall in US oil and product stocks, they climbed above $US50 a barrel last week and in the case of Brent crude, remained over $US51 at the end of last week.
US West Texas Intermediate crude futures posted their biggest weekly gain since March after surging 9% last week and nearly 25% percent in a little over two weeks.
US crude futures have risen almost $US10 a barrel since early this month on that speculation that Saudi Arabia and other members of the Organisation of the Petroleum Exporting Countries will agree next month to a production freeze deal with non-OPEC producers led by Russia (but not the US which is the world’s main swing producer, which is why any deal will flounder).
The rally has propelled oil into bull market territory (up 20% in price), after it fell into a bear market early this month (down 20% in price).
In New York, West Texas Intermediate (WTI) crude settled up 30 cents, or 0.6% early Saturday, our time, at $US48.22 a barrel after reaching $4US8.75, its highest since July 5. For the week, WTI rose 9%, up for a second straight week.
In London, Brent crude closed just a cent lower at $US50.88 a barrel, after hitting a two-month high at $US51.22. Brent rose 8% over the week, rising for a third week in a row.
OPEC will hold an informal meeting in Algeria next month with outside producers led by Russia. Some analysts have speculated about a production sharing deal, with Saudi Arabia helping stoke much of that perception despite scuttling a similar plan in April.
Others, including OPEC member Nigeria, do not think there will be a deal. Many analysts and traders also argue the current rally will not last.
“We would argue that improved fundamentals are not a key reason for the recent price bounce,” analysts at Morgan Stanley said in a note quoted by Marketwatch.com. “Crude oil demand is anaemic, gasoline demand has decelerated globally, and China crude oil imports are likely to decelerate.”
“We feel that this month’s approximate $9 crude advance could easily be followed by an equivalent sized price decline next month,” said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates also told Marketwatch.
US drillers this week added oil rigs for an eighth consecutive week, the longest recovery streak in the rig count in more than two years, the weekly report from oil services firm Baker Hughes showed.
It’s weekly report on Friday showed the number of active US oil rigs rose by 10 to 406. that was the eighth weekly rise in a row and takes 10 90 the total number of new rigs added since the most recent low of 316 was reached in late May.
Should US production reverse and start rising in the next few weeks, than that will blow up the current rebound.
Meanwhile gold had another bad day on Friday withe Comex December gold futures falling $US11, or 0.8%, to settle at $US1,346.20 an ounce.
Gold still saw a gain of around 0.2% for the week, but Friday’s sell down was a shock to some traders.
Comex September silver ended the week at $US19.317 an ounce, down 42.3 cents, or 2.1%. That produced the week’s loss of around 2%.
And Comex, September copper futures ended flat at $US2.167 a pound – about 1.3% higher over the week.
