LONDON: The oil price has increased more than 20 per cent over the last four days, technically taking the commodity into a bull market, however analysts believe the run will be short-lived.
West Texas Intermediate crude oil has jumped 20.1 per cent to $US52.25 per barrel over the last four sessions, while Brent crude has pushed 19 per cent higher to $US57.46 per barrel over the same period.
While those kinds of price fluctuations are normally associated with a bull market, the feeling around oil remains far from positive.
“I think a lot of people are trying to read too much into it. It looks like a purely technically based rally on the back of very little news,” ANZ senior commodity analyst Daniel Hynes said.
“Obviously, the announcements of cuts to capital expenditures have helped, we also saw falling US oil rig count on Friday. But, ultimately these things don’t change the fundamental picture in the shorter-term.”
BP recently announced it was planning to cut capital expenditure by 13 per cent in 2015, following cuts from other producers. The company’s chief executive Robert Dudley said oil could remain at $US50 per barrel “for some time” overnight in the US.
The current rally in oil prices could continue in the near-term as more short positions are washed out of the market, however, it is unlikely to last over the medium-term, Mr Hynes said.
“For the moment, with a rally off the year low, it looks like we may be passed the worst. But, as I said, the fundamentals are still weakening. Whether the market chooses focus on those, we’re yet to see, if they do, this move would remain fragile,” Mr Hynes said.
The rise of US shale and a refusal from OPEC (Organisation of Petroleum Exporting Countries) nations to cut output, because of fears of losing market share, have led to a 50 per cent plunge in the price of Brent crude since mid-June.
