Oil prices spiked down last week, with the WTI hitting multi-month lows on concerns about global demand. Crude prices bounced up later up and returned to levels near $48 which, according to, the Commodities Strategy team at Rabobank, might be the trend over the mid-term.
“Oil prices came under pressure last week and even early this week considering the market opened sharply lower this past Sunday with the spot Brent price setting new 20-day lows at just $35.74, well below the psychological $40/bbl level. This oil price weakness was largely the result of news that Libya is ramping up oil production at the same time that Europe is entering a period of strict lock-down conditions which is likely to weigh on oil market balances.”
“The dip in oil prices was brief though and the market surged higher on Monday and Tuesday as retail and real-money investors returned to the fray to buy the recent dip in prices in earnest. In fact, we have seen investor appetite to own oil perk up for the first time in a while as prices fell last week in what has become a very prominent theme this year. This strong buying was likely a key driver behind the impressive $5/bbl rally off the Sunday night lows, which came despite a weaker fundamental backdrop.”
“Looking forward, the recently announced refinery closures in North America and Europe is suggesting that crude demand is likely to remain challenged in the West. As such, we continue to expect crude oil to remain relatively range-bound in the low $40s for Brent. To our minds, the opposing forces of momentum-based institutional flows combined with the mean-reverting ETP investor are what has kept oil prices in a relatively narrow range.”
Credit: FX Street