The oil price has risen over 20% in the past week
Since the middle of January, the oil price
has been starting to climb again. Is this the return of a bull market?
After falling so much, could this be the case?
Over the last week or so, the price has been making some impressive gains. At the moment, it’s currently trading around the $56 a barrel mark.
That’s quite a jump from the mid-$40s that oil hit in January.
Have a look at the chart below showing the price of Brent crude over the past 12 months…
What’s going on with oil?
The recovery in the oil price could be down to a number of factors…
For one, oil companies are starting to make hefty cuts, John Stepek in Money Morning UK
explains. This includes halting production at a number of oil rigs and canning investment.
Not only that, the US is showing signs of a rise in demand for petrol.
Yet this is despite production remaining at high levels. The US is producing at its highest levels since the 1980s. And it doesn’t look like OPEC is going to cut production to curb supply.
Not surprisingly, reports suggest there were a huge number of short sellers in the market. At the end of January, the number of traders betting the oil price would fall hit a four-year high.
Hints of a recovery in the oil price would result in many of these traders closing their positions and banking profits.
This could mean that a bull market is in fact not back, it’s just a short-term bounce.
Large oil companies stand to benefit over the long-term
Of course, no-one has a crystal ball and knows where the oil price is heading. But many oil companies can’t operate with the oil price so low and there will continue to be casualties.
This bodes well for the large oil companies that will be able to pick up assets at a bargain price.
Locally, the rise in the oil price means that South African motorists will likely see a rise in the price at the pumps, reports BDLive
. This would be the first hike in the price of petrol since August last year.
Only time will tell if the bull market is back for oil or if it’s just a short-term rally.
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