Oil price shoots up: has market finally bottomed out?

Oil price and shares on the rise but experts say there are 'powerful' reasons to suggest it won't last

Tue 3 Feb 2015 

Oil prices rose yesterday, boosting oil and gas share prices and prompting further speculation that the market has bottomed out.

Brent crude, which has more than halved in seven months, posted its biggest one-day gain in six years on Friday. Despite a fall yesterday morning, the price increased again by $2.63 a barrel to $55.62.

Shares in FTSE 100 oil stocks, including BG Group, BP, Shell and Tullow Oil, rose sharply amid hopes that prices are beginning to recover, reports The Times.

The initial increases on Friday came after a report showed that 94 US oil rigs and 11 Canadian oil rigs were taken offline in the past week, suggesting that US output will fall.

US gas consumption has also picked up in recent weeks, indicating that demand is responding to lower prices.

"There is no doubt that investors are flooding back into energy," Ole Hansen, the head of commodity strategy at Saxo Bank, told the Times. "The market has been under so much selling pressure for so long. Investors are worried they going to lose out on a rally."

However, he added that a long-term increase was too early to call. "It could easily run out of steam and we could see prices come back down again quickly," he said.

Abdullah al-Badri, secretary general of Opec, suggested that prices had "reached a bottom" last week and predicted a rebound "very soon".

But Neil Hume, commodities editor at the Financial Times, says there are "powerful" reasons for thinking that prices have not found a floor.

One reason is that the global growth market is sluggish, with companies and households cutting back on investment and consumption. While US rig counts are falling, US domestic production is still rising, he says, and there is no sign of Opec lowering its production target, with some members even increasing their output.

Source: www.theweek.co.uk