The skewed oil supply and demand ratio was forgotten on Monday as most commodities found welcome relief in a lower U.S. dollar (USD) and the possibility of an interest rates hike in the U.S. being delayed beyond September.
Investor sentiment was buoyed by an interview on Bloomberg when Federal Reserve Vice Chairman Stanley Fischer expressed the view that the low inflation rate could delay a hike in the interest rate beyond September. While the labor data was satisfactory, the inflation half of the equation to hike rates was still too low. His comments resulted in a weakening of the dollar and an accompanying increase in commodity prices with oil futures bouncing back during trading on Monday afternoon.
On the NYMEX, the U.S benchmark West Texas Intermediate crude for September delivery (CLU5, -0.58%) picked up $1.09 or 2.5% to close at $44.96 per barrel. This contract had dropped as low as $43.35 early Monday and appeared set to repeat the poor performance of last week when it lost 6.9% before staging a recovery.
The London oil price also reacted favorably to events with September Brent crude (LCOU5, -0.42%) gaining $1.80 or 3.7% to trade at $50.41 per barrel, breaking through the important $50 resistance level.
Analysts remained bearish on oil’s near-term price prospects as the fundamentals that have been pushing the price down remained in place despite a degree of optimism reflected in investor sentiment. Factors such as the global oversupply of oil and the weaker demand from China remain the same as last week. There should be additional concern about falling demand with the latest Chinese economic data showing a further contraction in the country’s economy coupled with falling domestic and foreign demand for goods.
Myrto Sokou, senior research analyst at Sucden Financial, said in a note, “There are a few good reasons that could explain and verify the current low crude oil prices: the strong rally [of the U.S. dollar], current bearish crude oil fundamentals and the recent slowdown of the Chinese economy prompt investors to sell off.”
He added, “Furthermore, investors could remain cautious amid an imminent increase of U.S. interest rates in September. We could soon see crude oil prices trading back to the $40 per barrel level.”
MT4 Chart: Oil