Crude rallies

22 Okt

Crude oil recorded an increasingly rare positive session yesterday, and is on course for another as things stand this morning. Front-month WTI is back above $70 per barrel, and trading at its highest level since this time last week. It is probably far too early to call this latest move uncontestably constructive, given this troubled market. But WTI has put in several higher lows and higher highs since dipping under $65 in early September. The front-month contract really needs to get back above $75 for the pattern to look more bullish, and that requires a rally of at least 5% from current levels. While hostilities across the Middle East have not contributed to any supply interruptions, investors remain mindful that Israel has not yet responded to Iran’s missile attack from several weeks ago. Israeli Prime Minister Netanyahu has said that any response would target Iran’s military, rather than the country’s energy or nuclear infrastructure, and that helped to dampen a brief period of buying pressure. The question now is whether this rally has legs, or if it is yet another mild correction which will simply provide sellers a better entry level. Bear in mind, nothing has changed as far as the outlook for demand growth is concerned. China’s economy remains problematic, while the switch to alternatives, not just renewables, but natural gas and nuclear, is ongoing.