Crude oil could rebound soon
Last week saw oil prices fall sharply on the back of a rebounding US dollar, plus news of a smaller-than-expected decrease in US oil inventories and a rise in drilling activity there. Prices have extended their declines marginally as the new week begins. Net long positions on WTI have been trimmed further by a good 145,365 contracts in the week to 5 July according to data from CFTC and are now at their lowest level since early March. Clearly, profit-taking has played a major part in the sell-off. Indeed, given the fact that the on-going crude oil weakness has not had a material impact on an otherwise positive investor sentiment (for example, the major US equity indices set to climb to new or approach their prior all-time highs today) this also suggests that this may be a mere pause in the oil rally and that a rebound should be expected to be seen, soon. But at the moment the oil market is ignoring the bullish factors such as strong demand and declining US oil production, which, according to the EIA, had its biggest weekly fall since September 2013: 2.25 per cent. These factors should help to limit the downside for oil. What’s more, inventories are falling, which can only be good news. I therefore still think that it will be a matter of time before oil prices head north of $50 again.