Crude oil, both Brent. and WTI is trading above $50/barrel, psychological resistance and extending gains. Recovery began back in February, from where crude prices are up 95%. Brent is up more than 39% YTD and WTI more than 37% YTD.
After more than 70% drop in crude prices, since summer of 2014, a correction was largely expected but current rally doesn’t exactly fit the criteria of a correction. Nor can it be called a recovery. Since most of the factors, such as the supply-glut, which led to the drop in crude prices, still remains. While supply has shrunk due to drop in shale output, production has gone up in the Middle East. In addition, the outages and production halt in Nigeria, Venezuela, Canada, Libya, and Iraq likely to be proved short-term phenomenon.
Production surplus is so large that one can see tankers filled with crude oil, floating near Singapore port. According to Hellenic shipping new article, almost 9% of the global VLCC fleet is currently booked for floating storage. The volume floating is estimated to be 47.7 million barrels, highest in five years.
With such supply/demand fundamentals, crude oil is very much vulnerable to a financial wind-down.
Brent price has reached strongest level since last October, however, the net speculators long position has reached highest level since May last year.
Rush to financial covering may once again push crude much lower.
However, recent monetary policy stance, where FED has been pushed back foot by data and ECB unveiled fresh monetary stimulus this year, crude oil speculation may extend further in the near term, pushing prices higher. But unless the underlying fundamental changes it will remain vulnerable to long position meltdown.
WTI is currently trading at $51.1 per barrel and Brent at $1/barrel premium.
The material has been provided by InstaForex Company – www.instaforex.com