Another Week of Gains Ahead For Oil?

Despite retreating from the three and a half month highs reached last week, with declines on Friday, Crude Oil posted yet another strong week of gains, making it five straight weeks of finishing in positive territory. Meanwhile, Brent Oil gained 2.01% for the week, making it a fourth consecutive week of rises.

Spurring the gains last week was growing optimism that the major oil producers will agree an output freeze.  Since hitting a 13-year low at $26.05 a barrel on 11th February,  both crude oil and brent oil prices have rebounded by around 40%. But will it continue this week?

Friday’s losses were down to a surprise increase in the US rig count. Although the number of rigs increased by only one right to make it  a total of 387, it ended three consecutive months of weekly declines.  The unexpected increase in drilling activity sparked some speculation that domestic production in the US may be about to rebound in the coming weeks, bringing the underlining fears over the supply glut to the fore. However, it is the possible news from the OPEC initiative to freeze production, which is what really matters.

The upcoming week will see oil traders focusing on stockpile data from the US on Tuesday and on Wednesday for the latest supply and demand signals as well as the potential developments of a deal between OPEC and non-OPEC producers to limit output.

Keep a firm eye on Wednesday’s supply data, but also look out for other indicators of where oil prices will go. A weaker US Dollar will make oil a cheaper and more attractive investment, so Thursday’s US jobs data and Monday’s US home sales data should be followed as both are important indicators as to the strength of the US economy, with the US being the world’s largest consumer of oil.

Attention will then turn to Friday’s US GDP data and the Baker Hughes Rig count. Any indications that production is increasing and future demand weakening, may well end the impressive run of oil we have seen lately.

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Daniel Simmons