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Sentiment And Symbolism is Driving Oil Price Surge - Once Again: Analyst
The roller coaster oil market rocketed upwards once more this week to the tune of a 10 percent increase over the past three trading days and US crude trading above $45.50 per barrel on Monday – but analysts warn that with the exception of news that U.S. crude inventories may be falling, the surge is not based on fundamentals; instead, it is once again based on symbolism and sentiment.
Michael Tran, commodity strategist at RBC Capital Markets, wrote in a note, "We caution bulls on becoming overly exuberant," in reference to media reports that the Organization of the Petroleum Exporting Countries (OPEC) members, Russia, and other major oil producers will agree to freeze production when they discuss market stabilization next month in Algeria.
Tran pointed out that "Any plan of action would largely be symbolic and sentiment-driven."
Jim Ritterbusch, president of Ritterbusch & Associates, agrees, but he also suggests that a sober assessment of what will likely transpire in late September will do little to dissuade the upward swing of what is shaping up to be yet another volatile price gains-and-loss cycle.
He told CNBC, "With Russia joining the chorus, an array of bullish oil ETFs saw a sizeable influx of capital that lifted crude values by more than $5 a barrel off recent lows.
"While we see very little possibility of an actualization of curtailed OPEC output, there will likely be enough chatter during the next five to six weeks to deter selling in allowing WTI to gravitate at around the $45 area, at least through the second half of this month."
Stephen Schork, editor of The Schork Report, rationalized the bulls' mindset by telling Bloomberg that even though he maintains a long-term bearish outlook, "If you're trading on a day to day week to week basis, you have to be able to follow the momentum."
But that momentum may have a predictable outcome, says Carsten Fritsch, analyst for Commerzbank: "In our view, a renewed price correction cannot be ruled out if market participants start focusing on the supply side again, for the latest drilling activity figures in the U.S. cast doubts that the oversupply is really being eroded."
Although a Reuters poll has indicated total U.S. crude inventories may have fallen last week - which in turn has contributed to the current price surge - Fritsch is referring to Baker Hughes data released on Friday showing that the number of rigs operating in U.S. rose by 15 last week to 396.
Last week, Ritterbusch told media that the build up to another round of talks is little more than a carefully choreographed bid to benefit a single OPEC member: "The Saudis benefit from talking this market up ... they buy a little time and give the market a chance to acquire better balance.
