Oil Close To $40 Per Barrel But Analysts Maintain Doubts Over Sustainable Rally

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Oil “United States Oil Fund LP” (ETF) (NYSEARCA:USO) prices continued an upward streak today, led by a recovery in global benchmark crude by more than a third of its 2016 lows. The positive momentum in oil is driven by shrink in oil supply as well as a renewed hope of global recovery.

Brent near $40

Brent Crude is up 1.01% to $39.11 during today’s trade. West Texas also surged by $0.44 to $36.36. The data that helped the oil price rebound is an update that U.S. energy firms slashed their oil rigs for an 11th consecutive week, marking a December 2009 lows.

Apart from this, the non-OPEC output outside the U.S. also reduced and registered a drop year-on-year in February. Spending cut by oil producers has started translating into lower output, according to several analysts.

Glut scenario may prevail

Norbert Ruecker of Julius Baer called the bullish momentum in oil as not an outcome of fundamental shift but a recovery in sentiment. However, Ruecker warned that the huge stock reserves of oil could still weigh on the prices, and the recent recovery should not be taken as a long-term trend.

Another important factor that could weigh on the oil prices is the imposition of the cap by the Chinese government. Reportedly, China has placed a cap on its energy consumption by 2020, which marks the first time when the country has set any energy consumption limit. According to market traders, the uplift in oil prices is mainly due to change in the sentiment as a number of short positions were closed, which accompanied an increase in long positions.

As per Ric Spooner, Chief Market Analyst at CMC Markets, there is high chances that Brent Crude could touch $40 soon. However, technical analysts argue that the commodity is close to the end of the rally. Morgan Stanley held the view that the upside will remain capped due to oversupplies and hedging from oil producers.

iPath S&P GSCI Crude Oil Total Return (NYSEARCA:OIL) closed the previous session 4.02% up at $5.17.

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