BackOil in bull market heads for biggest weekly gain since March
Oil has climbed more than 20% since it dipped below $40 a barrel earlier in the month, meeting the common definition of a bull market
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New York: Oil headed for its strongest weekly increase in five months after entering a bull market as investors weighed speculation that Opec talks next month could lead to an output freeze and US inventories dropped.
Futures were little changed in New York and poised for a weekly increase of 8.4%. While the Organization of the Petroleum Exporting Countries (OPEC) is unlikely to reach a deal to freeze production, its plans to hold informal talks in Algiers next month “were the spark" behind oil’s rally, according to Morgan Stanley. US crude inventories dropped the most in five weeks through Aug. 12, while fuel stockpiles slid a third week, Energy Information Administration data showed Wednesday.
Oil has climbed more than 20% since it dipped below $40 a barrel earlier in the month, meeting the common definition of a bull market. Russian energy minister Alexander Novak said that the nation was open to discussing a freeze after his Saudi counterpart Khalid Al-Falih said that informal talks in September may lead to action to stabilize the market. While money managers increased wagers on rising oil prices by the most since January during the week ended 9 August, bearish bets on crude remain at record high levels, according to the Commodity Futures Trading Commission.
“It’s kind of a perfect storm that has rallied this market, but on the other hand it has nothing to do with fundamentals," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “It’s really a short-covering rally that’s been fueled by OPEC rumors."
West Texas Intermediate for September delivery slipped 1 cent to $48.21 a barrel at 11:51 am on the New York Mercantile Exchange. The contract gained 3.1% to close at $48.22 on Thursday, capping a 16% advance in six sessions. Total volume traded was 11% above the 100-day average.
Output freeze
Brent for October settlement sank 29 cents, or 0.6%, to $50.60 a barrel on the London-based ICE Futures Europe exchange. The contract advanced $1.04 to close at $50.89 on Thursday, also entering a bull market after climbing more than 20% from its early-August low. The global benchmark crude traded at a $1.77 premium to WTI for October.
In terms of technical analysis, the relative strength index, or RSI, for WTI is approaching the 70-point threshold that shows prices have risen too quickly.
“Once you get to 70 RSI that will be the flashing light that this thing has run its course," said Yawger.
An agreement to freeze output is within reach as Saudi Arabia, Iran and non-OPEC member Russia are producing at, or close to, maximum capacity, Chakib Khelil, former OPEC president and Algerian energy minister, said in a Bloomberg Television interview on 17 August. Iranian oil minister Bijan Namdar Zanganeh hasn’t decided yet whether to participate in the talks in Algiers next month, a spokesman said on 16 August. Iran’s refusal to join the April talks in Doha ultimately prompted the Saudis to block any deal. Bloomberg
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