Oil continues to flirt with USD 70 per barrel and it remains to be seen if prices are able to lastingly settle above this much-watched level with the latest up move. Global growth optimism, the bullish market mood and technical momentum still provide robust support. Julius Baer’s analysts still believe that prices above USD 60 per barrel project a too rosy fundamental picture.
Indeed, the global oil market, and specifically US supplies, has been tightening faster than expected in recent months on the back of strong demand growth. However, this tightening trend is set to slow and reverse as output growth from US shale basins, Canadian oil sands and Brazilian deep-water platforms should more than match projected global demand growth for the remainder of the year. US refinery runs seasonally soften over the coming weeks, which is an additional factor that should slow the recent declines of storage levels in North America.
Furthermore, the experts comment that hedge fund and other investor expect rising prices to remain in unchartered territory and it’s a question of ‘when’ rather than ‘if’ profit-taking will occur.
Timing the turning points is a very difficult exercise. We stick to our cautious view and see profit-taking as a key risk going forward. The shale business should continue to expand drilling and completion activity as prices rise. Although the leading companies commit to capital discipline, there is sufficient private equity capital chasing the shale boom.
Oil continues to flirt with USD 70 per barrel. Global growth optimism, the bullish mood and technical momentum support prices. We believe that today’s oil prices project a too rosy picture, stick to our cautious view, and view the market as being at risk from profit taking.