By Eithne Treanor
The week got off to a positive start with early momentum coming from the drop in the number of oil rigs deployed. Geopolitical uncertainty and currency fluctuations also impacted the market and sustained the upward trend. In early trading on Friday, Brent oil was priced close to US$65, with WTI above US$58 a barrel.
The oil price is now trading at its highest range since the beginning of 2015, boosting words from OPEC that the price would recover. No one was expecting a swift return to the triple digit highs of previous years, but this sense of stability is reassuring for the market sentiment. Data from the US Commodity Futures Trading Commission reflects more optimistic trends in the market. The bullish positions seen on WTI have reached their highest levels in eight months with speculators making bets on the price of crude. Such activity in the market has not been observed since summer last year.
The uncertainty in the market may be driving the price for now and some analysts fear this will be a short-lived rebound. The weak dollar has impacted the oil price and strength in the euro boosted oil demand from traders in Europe. The intraday trading price of US$58.41 midweek was the highest this year. Investment banks are taking a close look at the new and changing fundamentals in the market and Societe Generale raised its 2015 average price forecast for Brent crude by US$4.33 to US$59.54 a barrel and for WTI by US$4.28 to US$53.62 a barrel.
The general Middle East geopolitical situation has already been priced into the market but this week Saudi Arabia and its allies increased the pressure in Yemen with a sustained bombing campaign. The Saudi-led coalition continued the offensive against Houthi militiamen and military bases in Yemen, despite an announcement of a ceasefire. The big concern will be for the security of the Bab el-Mandeb Strait situated on the southern Yemen coast as this region controls the access to the Red Sea, the Suez Canal and other ports of western Saudi Arabia. The leader of the Houthi militia in Yemen accused Saudi Arabia of attempting to seize the country.
American oil production is showing signs of a decline and oil buyers and analysts expect that trend to continue. The US Energy Information Administration said that oil production had fallen for the past three out of four weeks. Domestic crude stockpiles increased by 5.3 million barrels last week to a record 489 million barrels. The rig count in the US continues to fall though at a slower rate. Global oil supply is still abundant, with no signs of OPEC members cutting back on production.
Oil prices have risen this month by as much as US$10 with the price now at their strongest for the year. This is mainly due to concerns about the fragile Middle East situation and its possible impact on supplies. On the fundamental side, the market is also seeing signs of stronger global demand, a trend the industry hopes will continue.