Will Oil Now Hold Above $30?

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Global oil prices staged an impressive recovery gaining more than 9% in Friday’s trade above $32 per barrel. The oil price has bounced by 21% since hitting 12-year lows. Now, the question in trader’s minds is whether the worldwide oil price can stay above $30 per barrel, seen as a line in the sand, or whether the bounce will be short-lived.

Upcoming Snowstorm

There is now renewed optimism that the oil price might stay above $30 per barrel mark for two reasons. One is the upcoming snowstorm in the US and the possibility of central banks announcing more stimulus. Both factors are expected to drive fuel demand.

Diesel futures were able to record the largest single day percentage gains in over a decade. Also, the cold weather covering the Northeast, Mid-Atlantic, and Southeast swaths is likely to boost heating costs.

After being on the losing streak for three straight weeks, oil prices snapped the trend to post a 5.9% increase last week on the NYMEX. Similarly, Brent crude witnessed a 10% increase to $32.18 per barrel on ICE Futures in Europe. As a result, the week as a whole saw 11% gains in Brent. On Thursday, ECB President Mario Draghi, indicated the possibility of easing measures as the region came under inflation pressure due to the oil drop.

Expectations Remain High On Stimulus

Traders appear to be betting on stimulus. There was speculation that Japan’s Central Bank might also follow suit in boosting its asset-buying program. Their contention was that such measures could ignite economic activity, which, in turn, might boost demand for fuel.

Standard Chartered Bank’s Commodities Research Head, Paul Horsnell, said that oil has been long due for a significant short-covering rally. He also said that it was too early to predict that the oil price has bottomed out. Goldman Sachs Group Inc. (NYSE:GS) predicts that the oil price would trade between $20 and $40 a barrel. Some traders believe that the recent recovery will not last long as worldwide inventories continued to grow. Weather may hold some respite for the near-term.

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