Global crude oil prices have started to enjoy bullish tailwinds this week and it doesn’t appear that the rally in oil will slow down anytime soon. On Tuesday, I talked about how the newfound love for oil was hurting gold despite the fact that the US dollar was weaker in the forex markets. The market is showing crude more love in today’s trading session and the latest reports indicate that crude oil prices have touched a six-month high to mark the highest level in 2016.
This morning, the West Texas Intermediate Crude Oil was up 1.8% to $44.82 per barrel while the Brent Crude gained 1.8% to $46.57 as at 7:28AM EDT. Oil has started to enjoy positive vibes on the hopes that OPEC and Russia will finally find a way to bring all warring factions to a consensus to freeze oil production.
Sentiment, not fundamentals is pushing the rally in oil
The EIA has also hinted that U.S. oil production could level off in the short to medium terms and the weakness in U.S. oil production is pushing a rally in oil. This morning, the American Petroleum Institute was quoted in many reports that U.S. oil inventories crashed by 1.1 million barrels last week. A reduction in U.S. shale oil will reduce the supply of oil and allow oil prices to climb higher when demand catches up with the supply.
The interesting part of the rally in oil is that the black gold is making gains despite the threats voiced by Saudi Arabia and Iran to increase their daily oil production – an increase in the oil production from the two countries could drown demand and return the supply glut that has weakened oil prices for almost one year. However, analyst note that the gains be reported in oil could be traced more to sentiment rather than a change in the market fundamentals that have kept oil prices depressed.
Tim Evans, an energy analyst at Citi Futures Perspective in New York says, “market sentiment continues to improve… A lot of people are convinced that the bottom has been reached, and the market will rebalance later this year.” More so, Clayton Rogers, an energy derivative broker at SCS Commodities Corp agrees that “there isn’t much fundamental news to get excited about aside from BP’s leadership seeing tighter supply-demand heading into year end.”
Gold edges higher ahead of Fed policy statement
Gold prices started this week by holding steady as investors await the fed policy statement this afternoon and the Bank of Japan policy statement that will be released on Thursday. On Tuesday, gold edged higher on speculations that the fed will not raise interest rates in April and that the first rate hike in 2016 will probably happen in June.
Gold is still enjoying bullish tailwinds from the speculation this morning and the yellow metal is up for the third straight day. This morning, spot gold was up 0.5% to $1,250.52 and gold for June delivery was up 0.6% to $1,250.60 an ounce – if gold closes above $1,250 today, it would mark the highest closing point in the yellow metal in about one week.
The U.S. Federal Reserve is expected to release a statement by 2PM EST after its 2-day April policy meeting ending today. Investors will be most interest in knowing if the Fed will go ahead to raise interest rates in April and investors will be paying special attention to the choice of words in the statement in order to gauge take a pulse on the U.S. economic outlook.