Looking under the hood of the oil rally

Crude has seen a 55% increase from the year low in to current prices.

Source: Bloomberg

Demand has shown green shoot signs of recovery as supply, having been forced to response to the price, reduced production (in the US at least).    

So is the oil conundrum at an end?

  • 12 weeks of declines in US rig counts to a record low has finally seen it tick up modestly (only by one), and shale saw a tick up for the first time.
  • US inventories increased by 8.9 million barrels last week, which is the second highest print of the year.
  • The OPEC-Russian freeze accord is due to be ‘debated’ between 20 March and 1 April. Public releases of this signing have fallen silent, as Iran has never wavered on its plans to reach pre-sanction levels.
  • OPEC output, although notoriously hard to track, is continuing to expand month-on-month. The January data illustrated that global output was approximately 1 million barrels a day above demand.
  • Demand is fluctuating, with gasoline inventories falling by more than three times estimated two weeks ago. However, this week’s data shows a very sharp reversal, with inventory flattening rather than declining.
  • Chinese demand has been fluctuating. The demand ramp up in late February/early March can be seen as re-stocking after the Chinese Lunar New Year.
  • India’s demand, which briefly overtook China, has shown its data may have been overstated.

The market is starting to review the macroeconomics to evaluate the move in oil. There are clear reasons that US$25 a barrel was an undershoot of fair value. However the market is showing signs that at US$42 a barrel, which may be an overshoot of fair value.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

Find articles by analysts

Een artikel zoeken

Form has failed to submit. Please contact IG directly.

  • Ik wens per e-mail informatie van IG Group bedrijven te ontvangen over handelsideeën en IG's producten en diensten.

Voor meer informatie over hoe wij uw gegevens mogelijk kunnen gebruiken, bekijkt u ons Privacy- en toegangsbeleid en onze privacy website.

CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen. 79% van de retailbeleggers lijdt verlies op de handel in CFD’s met deze aanbieder.
Het is belangrijk dat u goed begrijpt hoe CFD's werken en dat u nagaat of u zich het hoge risico op verlies kunt permitteren.
CFD’s zijn complexe instrumenten en brengen vanwege het hefboomeffect een hoog risico mee van snel oplopende verliezen.