Everything from a slowdown in U.S. shale to fighting in the Middle East is cited as catalysts for a bullish second half for oil. File Image / CC0
A 2.2 percent rise in crude prices on Monday has once again triggered widespread speculation that oil is likely to make a big move higher than lower in the remaining half of this year.
Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC that "We thought this market was actually a bit oversold: we think the fundamentals are better than where the price was earlier."
Her comments came in the wake of West Texas Intermediate settling up $1.03 to $47.07 per barrel and Brent climbing 92 cents to $49.69, its highest intraday level in over three weeks.
Helima Croft, RBC Capital Markets
We think the fundamentals are better than where the price was earlier
Croft also speculated that the U.S. rig count falling last week for the first time in six months might be the beginning of a trend, one which would theoretically contribute to a gradual tightening of stocks and therefore further price escalation; she added that attention should be paid to whether global inventories fall significantly in the second half of 2017.
The notion that the power of shale is beginning to waver was reinforced by Commodity Futures Trading data showing that bearish bets on West Texas Intermediate increased at a much slower pace than in the previous two weeks, at a time when shale drillers reduced the number of oil rigs for the first time since January.
Yet another factor that could send prices higher is tension in the Middle East: Croft warned that the market is not fully considering the geopolitical risks in that region and said it was a "very, very dangerous situation."
Stephen Schork, editor of The Schork Report, said that while prices may still move lower, key technical support exists for futures between $37 and $41 per barrel, and that if they break out of a range the direction will likely be higher: "Given that all these bearish headlines have been priced into the market, if you're going to have any sort of risk of a large outside move, I think it would be to the upside at this point."
Monday even saw rare analytical favour of the Organization of the Petroleum Exporting Countries' (OPEC) extended production cutback initiative: "As long as they can keep oil supply relatively constant, this higher demand is going to draw down inventories," said Jacques Rousseau, managing director at Clearview Energy Partners.
For once, the optimism on display wasn't countered by any overt contrary opinion: "The fundamentals are set up for a second-half comeback," declared Rob Thummel, managing director for Tortoise Capital Advisors, adding that lack of capital investment in U.S. production would help along the recovery by spurring an under supply of crude.
Capping Monday's upbeat speculation was the latest CNBC Oil Survey, 60 percent of whose participants agreed that OPEC has lost control of the oil market but that the bottom for oil prices is likely to be in the low $40s (although 70 percent did not rule out a further drop into the $30s).
As enthusiastic as Croft, Schork, and other experts may be, the challenges facing the market in the near term remain undiminished: just last week, Schork worried that oil had dropped $9 in a short period of time; he said, "this has to be a concern for the bulls because oil demand has never been stronger...your concern now is, what happens in September?"