With Brent crude rising above $50 on August 18, 2016, for the first time in 6 weeks (for a close of $50.89) and WTI up 3.06% and settling at $48.22, oil is now technically in a bull market - but analysts warn a "test of the lows" may be forthcoming.
Optimism generated by the gathering of the Organization of the Petroleum Exporting Countries (OPEC) next month in Algeria is credited for both benchmarks rising over 20% from the lows of early August, along with a weak dollar providing support.
But given that a similar buildup preceded two different production cap talks with no deal being reached, analysts warn that the same elements that quashed those deals - including Saudi Arabia's refusal to relinquish market share to the U.S., and Iran's determination to rebuild its export industry - will just as assuredly determine the outcome of the September congregation.
Noting that the Saudis have indicated they could boost crude oil supplies in August to a new record, Carsten Fritsch, senior oil and commodities analyst at Commerzbank, said, the latest news from Saudi Arabia is not price supportive at all. This is a double whammy for the oil market; a test of the lows of early August is quite possible.
Citibank analysts agree and told CNBC that OPEC cooperation hopes should be treated with caution, as this is shaky ground to base a bull rally on. To which Bill O'Grady, chief market strategist at Confluence Investment Management, added, that this whole rally has been based off of OPEC jawboning, which to their credit, has been quite effective.
Hans Goetti, chief strategist, Middle East & Asia, for Banque Internationale Luxembourg, is yet another expert who urges players to focus on the fundamentals rather than sentiment, and in this regard he told Bloomberg that with less-than-stellar global demand and even more supply coming on line, they think oil is locked in at a trade range between $40 and $50… for the next 6 to 12 months.
Perhaps not surprisingly, one of the very few people who has expressed outright optimism about the September talks is Chakib Khelil, former head of OPEC, who earlier this week reasoned that probably this is the time, because most of the big countries like Russia, Iran, Iraq, and Saudi Arabia are reaching their top production level: they have gained all the market share they could gain.