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Oil Gains 12% on the Week

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Oil Gains 12% on the Week

Oil Gains 12% on the Week

Aug 31 2015, 09.20am GMT

STOCK.com

Growing expectations that a number of the fundamentals that have been pushing oil prices lower might be changing, resulted in oil futures settling almost 12% higher on Friday.

A frenetic short covering rally on Friday pushed Brent crude through the $50 a barrel resistance level on news of renewed violence in Yemen, a storm threatening oil production in the Gulf and calls by Venezuela for a special meeting of OPEC all combined to propel oil prices to their biggest two day rally in 6 years.

The conflict in Yemen seems to be gaining momentum fuelling fears that oil production levels from Arabian Gulf oil producers might be in jeopardy easing the oversupply situation.

The threat posed by tropical storm Erika, which had raised fears of damage to rigs and other installations in the U.S. Gulf, followed by a drop in production, prompted higher prices. The threat has now subsided after the tropical storm was listed as officially dissipated on Saturday morning.

Venezuelan calls for a special meeting of OPEC and for Russia to be included in the gathering raised hopes that oil production would be reduced and with supplies normalized, this also had investors excited. It now appears that there is very little possibility of Saudi Arabia agreeing to a special meeting or allowing the battle for market share to be overshadowed by concerns about oil price levels.

Ted Izatt, chief strategy officer of global resources firm SKDA International however commented, “Oil producing countries have such high cost structures that they cannot survive low oil prices long term.” He added, “Long term there will be increasing pressure for OPEC to reduce production.”

October delivery West Texas Intermediate crude (CLV5, -2.30%) picked up $2.66 or 6.3% as it settled at $45.22 per barrel on NYMEX. This meant an increase for the week of 11.8% in the price.

Meanwhile, Brent crude for October delivery (LCOV5, -2.5%) increased by $2.49 or 5.20% to settle at $50.05 a barrel, an increase of just over 10% for the week.

For the present the underperforming Chinese economy and lower demand for oil together with the continuing oversupply could well see prices retreating again in the short term.

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