Bruce Jefferson
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Bruce Jefferson in Commodities,

Don't Get Excited By This Oil Rally - Here's Why

Macquarie Research recently issued an industry report on commodities saying that the recent crude oil rally is not justified by fundamental data. Analyst Vikas Dwivedi gave his case that while the global surplus of oil is shrinking due to major firms cutting production, short-term drivers are still challenging.

"We remain short-term bearish on crude oil despite the recent rally. Crude seems to be increasingly discounting bearish news and data including rapidly rising inventory levels. Market fundamentals, in our view, suggest the rally is too early, and we expect crude to retrace to the $30 per barrel range."

Analysts at Macquarie cited two factors that make them question the recent rise in oil prices:

  • Middle East loadings have remained strong with global storage levels rising.
  • Crude import volumes are expected to remain high in the near term.

Based on the above, analysts at Macquarie wrote that while an increase in capital inflow could push oil prices higher, they're not comfortable with the current rally. However, in the long term, commodity prices may increase as global growth drivers become more present.