The $50 Oil: Good News, Yet Not Really

May 27, 2016

By Thy

If you wonder what the current hottest topic among the financial crowd today is, the Sentifi tool can show you that it’s all about the crude oil price, which just hit above $50 yesterday.

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U.S. benchmark oil prices reached $50 per barrel for the first time in 2016, driven by the release of U.S. Energy Information Administration data. The figures showed that the crude oil stocks have decreased by 4.2 million barrels to 537.1 million barrels in the week to May 20. The wildfires in Canada was believed to be the main cause for the decrease in imports which had led to falling crude inventories.

Craig Erlam, senior markets analyst at Oanda, said: “While a move above $50 shouldn’t necessarily be an important step, people often talk about oil as trading within certain ranges and so a move out of one — $40-50 in this case — can actually be quite an important psychological shift and be indicative of a more significant move to come, in this case higher.”

Yet the good news amid the global oil supply glut has brought some observable effects on the global financial markets. On FTSE 100, the commodity stocks gained on the news with Glencore as the top riser. Antofagasta and Anglo American also saw their stock prices up. The same effect happened to Australian shares when the ASX energy stocks moved 1.96% higher on Thursday.

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(Sydney Morning Herald)

European and U.S. energy stocks attracted higher interest from buyers after the news came out. The heat of the event was strongly felt across Asian markets with energy shares in Hong Kong and China in the spotlight. But concerns over a hike in U.S. interest rate have restricted the gains.

After the oil price hit the $50 key threshold yesterday, John Kilduff, partner at Again Capital, expressed his opinion that this would not last long: “I’m still not that constructive on it. I think some of these outages that have driven the latest leg of the price move are transitory.” He may have his own reasons but we have to admit that it does not really take long.

Crude oil prices fell back to below $50 in early Asian trade on Friday. Investors fear that oversupply will strike again as U.S. shale producers might resume production. The fall was also caused by the pressure of a stronger greenback with the dollar index.

Some analyst are also bearish on the steadiness of oil price rise due to Iran’s increased production output, uncertainty on demand from China and other key markets. “I think people feel like $50 dollars is a kind of sell-point where the people who’ve made their profits are going to get out of the market. So it may act as a temporary ceiling.” said Mike Lynch from Strategic Energy & Economic Research.

OPEC’s upcoming meeting is scheduled for June 2 in Vienna, Austria after failing to mandate an oil production freeze in April. The recent movements of oil prices seem to make an output reduction become less possible than before. While the crowd is wondering if the $50 oil will stick around, it is certain that the uncertainty over the global oil industry is here to stay.

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