Oil prices may be hitting their peak. Benchmark oil prices have moved from a bearish to a bullish territory in just a span of 11 days, following Saudi Arabia’s energy minister that the country was “ready to take action” to stabilise the market.
Opec and non-Opec producers are slated to meet informally in Algeria late next month. The assurances from Saudi Arabia is a big turnaround from the Doha meeting in April, when Opec’s biggest oil producer said a deal was not possible without Iran, which has been boosting output to defend market share.
“The fear of freeze action will potentially be enough to dissuade traders from going aggressively short into September, a month that has been host to oil price declines,” Ole Hansen, head of commodity strategy at Saxo Bank said. Oil prices have been on a declining trend for the past five years in September.
“Having seen the price of oil return to $50, Opec is now [if it is maintained] unlikely to do anything at the late-September meeting in Algiers,” Hansen said.
On Friday, Brent crude touched the highest level in eight weeks of $51.22 (Dh187.9), or re-touched its pre-Brexit levels, before closing 0.18 per cent lower at $50.80. West Intermediate Texas closed 0.62 per cent higher at $48.52.
However the price rally could be self-defeating as higher prices would encourage US shale producers to spruce up production, underlining the global supply glut.
According to oilfield services provider Baker Hughes, the number of rigs drilling for oil in the US last week increased by 10 to 406, the eighth consecutive weekly rise and the 11th increase in 12 weeks.
Meanwhile, for the third quarter, Emirates NBD has an average forecast of $45 per barrel and $50 per barrel for the fourth quarter on oil prices.
“The price trajectory that we have is based on rebalancing in the market and supply and demand getting closer and generally conditions becoming tighter,” said Edward Bell, commodities analyst at Emirates NBD, adding “we are seeing that happening that slower than others had anticipated.”
On Friday, stock on major markets fell worldwide and US dollar was firm on expectations of a rate hike in September. This week, investors in addition with the crude oil market, would also watch US Federal Reserve’s chairman Janet Yellen’s speech on Friday, on hints of a possible rate hike. Global central bankers are expected to meet on August 25 at Jackson Hole in the backdrop of slowing growth and divergent monetary policies,
“Many investors hope her [Janet Yellen] speech on Friday will provide more clarity on the Fed’s next move, however we don’t expect much on the timing,” said Hussain Sayed, Chief Market Strategist at FXTM.