As Oil Surges, Barclays PLC (ADR) (NYSE:BCS) Warns Against Optimism

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It’s more good news for oil companies today as the global oil price surged for the sixth straight day with Brent witnessing its biggest winning streak in four months. For the first time since, the international benchmark advanced 2% to $39.50 a barrel of oil on Monday morning. Similarly, the US benchmark WTI also increased 2.2% to $36.72 a barrel. Incidentally, it was the highest level this year.

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However, Barclays PLC (ADR) (NYSE:BCS) analyst, Kevin Norrish, warned against excessive optimism regarding the recent oil price rise.

Fears Of Growth Concern Moderated

The recent jump in oil prices may be partly driven by the moderation of fears on slowing global growth apart from the fact that the number of drilling rigs dropped to a low post the financial crisis of 2008. As a result, Brent witnessed an over 40% gain from its low recorded in January. Shares of oil companies have also reacted to the news favorably. However, the Barclays analyst was not convinced and termed the recent rally a fragile one.

According to Norrish, the market was reading too much into China as he termed the optimism as somewhat premature. He pointed out that its China economists were of the view that the fiscal policy expansion would likely moderate as the year progresses. Aside from that, the second biggest economy in the world would continue to struggle to beat the softening of its GDP growth pace.

Two Other Key Factors

Barclays also pointed out two more key factors that will still play a key role in driving oil prices in the coming months. The analyst said that economic data from America was fluctuating while the larger picture suggested that several key commodity-consuming sectors were still looking soft.

The third factor pointed by Norrish was that OPEC was yet to take a decision on freezing oil production at January levels. He believes that it is far from certain to succeed. He pointed out that the countries that supported the policy, were mostly producing oil at close to capacity. That meant oil prices can drop at any time as the current rally was not supported by any fundamentals.

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