When Brent crude fell below $30 a barrel in January, many analysts predicted a slump to $15. But it turned tail instead. Last week it edged above $50 a barrel, up almost 100% from January’s 12-year low. “Expectations of a market rebalancing in the second half of 2016 looked optimistic a few weeks ago; now they look sensible,” says Fidelity’s Tom Stevenson in The Sunday Telegraph.
The huge glut in the market has dwindled surprisingly quickly. Forest fires in Canada have lowered production there, while militants have reduced Nigeria’s output by 40%. Venezuela, also a major producer, is imploding.
Meanwhile, demand has strengthened. American petrol use is set to surpass the 2007 record this year. Chinese oil imports have risen this year and India’s consumption is also rising, helped by record car sales .
Yet the latest gains may not prove sustainable. Overall demand growth is still slower than last year, the Economist Intelligence Unit’s Sebastien Marlier told The Guardian. Key producers Saudi Arabia and Russia are pumping at record levels, while Iranian oil has come back to the market faster than expected.
The latest supply problems should prove temporary, moreover. Meanwhile, plenty of US shale producers may be tempted to restart production at these price levels, capping further gains. The fundamentals are heading in the right direction for the bulls, but for now it looks as though they are getting ahead of themselves.