As Oil Hits 2016 high, Danish analyst Predicts Shipping Will Lead a Recovery in Offshore Markets

Oil hit a 2016 high today.

With Brent closing on Thursday at $48.14 per barrel after reaching a 2016 high of $48.19 and U.S. crude closing at $46.03 after a 2016 peak of $46.14, oil prices have surged nearly 80 percent since hitting 12 year lows of $27 and $26 respectively earlier this year.

Even more remarkable is that the rally is happening despite the U.S. government disclosing this week that crude stockpiles are at an all-time high above 540 million barrels – something that caused Scott Shelton, a broker for ICAP, to remark, "The market seems invincible, and well supported by money flow."

However, Tariq Zahir, trader and portfolio manager at Tyche Capital Advisor, warns that "With crude inventories building and the Saudis still pumping at record levels, we feel the recent run-up has been mainly fuelled by the weakness on the dollar" – a reference to the 5 percent drop in the U.S. dollar this year.

Still, other signs suggest a market recovery is indeed brewing: Mads Syversen, chief executive officer at Oslo-based Arctic Securities, said a 60 percent rebound in benchmark North Sea oil prices is something "some will see as attractive with a bit longer perspective; an improvement isn't high activity, but I agree that we are close to something of a bottom."

Syversen predicts that a recovery in shipping will come before offshore activity rebounds: "Buying and selling ships where the underlying market is working: we see within dry bulk that activity have increased some."

He adds, "I see an attitude, compared to January, that is much more interested in looking at the opportunities that are out there."

While most analysts agree a recovery is impending, they differ in their opinion of how it will transpire: the International Energy Agency believes the recovery in oil prices will likely be swift but, in the medium term, they will not reach levels seen in the first half of 2014.

Meanwhile, Energy Aspects Ltd. has calculated that it won't be until 2021 before accumulated global stockpiles will be cleared and a true market recovery will commence; and Pedro Joaquin Coldwell, energy minister to Mexico, thinks it could take up to two years before prices will rebound significantly.