The price of a barrel of OPEC crude has risen almost $10 or 22 percent in just the last seven trading days, as of Monday.
The huge jump has prompted many people to proclaim the end of the great petroleum price slide. But others say it’s just a brief reprieve.
Of course, no one knows for sure. And, since none of those now saying which way the price will now go foresaw the price slide that started last June 23, it wouldn’t be reasonable to take all predictions with a barrel of salt.
The price of an OPEC barrel topped out at $110.48 June 20. It bottomed out (for now) at $41.50 January 13, a drop of 62 percent in seven months. It then stayed in the low 40-dollar range for two weeks before launching on its giant leap upward.
But it should be noted that at $53.58 as of Monday, the price was just back to where it was in late December and it is still less than half of the price of last June. At $53.58 it is still far below where many analysts writing in early December ever thought it would fall.
The seven-day (so far) rally is generally attributed to the drop in the number of oil rigs operating in the United States and massive cuts in the exploration budgets of most oil firms.
But many analysts note that exploration budgets are still large after the cutbacks and that oil output is still slated to rise for many months based on past oil rig work.
Resorting to a football terminology, Citigroup said the rally is “more like a head-fake than a sustainable turning point.”
Citi wrote that short-term market factors are more bearish (downward-trending), implying more price pressure for the next couple of months and beyond. “Not only is the market over-supplied, but the consequent inventory build looks likely to continue toward storage tank tops,” it said.
Ironically, Iran boasted last week of obtaining the world’s largest oil tanker with a capacity of 2.2 million barrels—but Iran is using the ship to store oil it can’t sell, not to deliver it.
Citi predicted a sharp recovery in oil prices by next winter. “As a result of that, there should be an enhanced stimulus for US shale oil production growth going forward. This could overwhelm demand growth and bring prices down again in a W shape,” Citi said. In other words, prices would be low in 2016.
The International Energy Agency (IEA), the Paris-based grouping of three dozen oil-importing nations, generally agreed with Citi. In its analysis published Tuesday, the IEA said the current rally was likely to be limited.
The rally now underway “will cause the North American price ‘party’ to mark a pause,” the IEA said. “It will not bring it to an end.”
Without citing “a W shape” like Citi, the IEA described just such an up-and-down movement. It said a price rally would lead to a rebound in US output and another drop in prices.
But, in the short term, the IEA said, “a price rebound … seems inevitable.”