Oil's recent jump has spurred hopes for a shift toward a price recovery, but analysts warn these gains won't last.
On Thursday, on the New York Mercantile Exchange, futures prices for crude oil CLK5 rose more than 12% to finish at $56.71 a barrel — the highest settlement of the year so far.
On Wednesday alone they jumped 5.8% after the U.S. Energy Information Administration reported an
increase in crude supplies was less than half what the market expected.
The supply build which was smaller than expected, was the impulse needed to
propel futures up through the resistance level of $55 a barrel for West
Texas Intermediate crude.
Following the price rally, the “near-term benefit of the doubt is with the bulls,” said analyst Tyler Richey, with the initial upside target sitting between $62.25 and $63 a barrel.
While this could outline some progress toward a
recovery for Nymex oil prices, they still have a long way to go after
having been nearly halved from about $105 a barrel in July of last year.
The oil-price plunge was “so quick and dramatic, it might have been overdone if you are looking to the next 12-18 months when you will see production slow in the U.S” said Karim Rahemtulla, who is chief resource analyst at Wall Street Daily.
The amount of rigs
actively drilling for oil have fallen by about half from the same time
last year, as of April 10, Baker Hughes
BHI data show.
It would take time for the drop in drilling rigs to significantly influence production numbers, analysts say. It seems as if oil prices right now are “rising on the back of speculation more than anything else,” said Rahemtulla. He said the bias for oil is still “to the downside as supply growth hasn't abated enough and won’t do so until the third quarter in the U.S.”
