Wednesday, June 8, 2016
Oil just did something it hasn't done for nearly 11 months
Both major oil benchmarks, US West Texas Intermediate and Brent crude, closed the later part of Tuesday above $50 a barrel.
For Brent, which crossed the mark late last week, it wasn't a huge deal. But the close marked the first time since July 21, 2015, that both the world's most prominent oil benchmarks have ended a trading day higher than $50, marking a significant moment for the oil markets, which have been battered for the last two years.
On Wednesday, both benchmarks are holding comfortably above the $50 mark, suggesting that oil may have settled in a new price bracket. Around 11.10 a.m. BST (6.10 a.m. ET) Brent is up by 1.07% to $51.99, while WTI is also higher, having gained 0.95% to trade at $50.84.
Here's how both benchmarks look Wednesday morning:
After hitting bottom in January when it slipped as low as $28 a barrel, oil has now gained as much as 80%, and there is an increasing feeling within the markets that things are starting to rebalance, which will in turn help to boost prices.
In mid-May, Goldman Sachs suddenly turned bullish on oil, saying the market is now rebalancing, and pointing to huge supply disruptions as the crucial reason for doing so.
Despite oil's recent climb, it does seem unlikely that oil will break much higher than $50 in 2016, with a large number of the market's most respected oil analysts, including Goldman, backing oil to end the year at around the $50 mark. That could cause big issues for smaller oil-producing nations, which need higher prices to make their production profitable.
In an email this morning, Mike van Dulken from Accendo Markets notes that later on Wednesday, markets will be paying keen attention to the latest US inventory data, which could give oil another price boost, should they show a third weekly decrease:
Oil in the spotlight having broken back above $50, the US’s latest EIA oil inventories will attract much attention after API data last night suggested another weekly drawdown (-3.6m barrels). With last week’s EIA drawdown making it two weeks on the trot for the first time since September 2015, a hat-trick will add to hopes of markets moving a step closer to rebalancing even if supply issues (Nigeria, Canada) are providing artificial buoyancy.