Saxo Bank: Risk for oil prices to drop lower

Saxo Bank: Risk for oil prices to drop lower

Baku, Azerbaijan, March 30

By Aygun Badalova - Trend:

With the oil prices that have gone below $40 a barrel there is a risk for them in the near term to drop even lower, Ole Hansen, Head of Commodity Strategy in Saxo Bank told Trend on March 30.

He believes that there is a risk for Brent Crude to drift back down towards the $35 area and then later, in Q2, establish the $35-$40 range.

Hansen mentioned some renewed weakness hitting the oil markets.

"You can argue that fundamentals at this stage are probably not there yet to support a sustained rally in oil markets. We have obviously been rallying on the back of news about a production freeze, we are seeing a meeting late in April where OPEC and non-OPEC members have to make a decision. If they fail to do that, it could have a significant impact on the price," Hansen said.

"In the US, at the same time we will continue to see inventories rise over the coming weeks, there will be a slowdown and we will revert to an inventory draw as we move into May, but we are still a few weeks away from that," he added.

These are some of the negatives at the moment, but probably the biggest worry right now is the fact that we are seeing speculative interest increase dramatically on the long side during the past six weeks, Hansen said.

"If we look at Brent Crude, we can see the net long has now reached a record. For every short position on the market there is now almost 10 long positions. On previous occasions when we have seen markets become too skewed in one direction we often tend to see a sharp snapback the other direction, and that is the risk oil markets are currently facing," Hansen added.

Oil prices rose on Wednesday, supported by a weaker dollar and industry data showing a smaller-than-expected increase in U.S. oil inventories.

Brent crude, the global oil benchmark, rose 1.3 percent to $40.37 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 1.7 percent at $38.94 a barrel, according to the Wall Street Journal.

OPEC and non-OPEC producers plans to hold a meeting in Doha in mid April to discuss the oil output freeze.

While 11 of OPEC's 13 members, which produce a half of the global oil, say they will attend oil production freeze talks next month in Doha, Iran and Libya have rejected to participate in this issue.

In February, Russia and OPEC's major oil producers, including Saudi Arabia, agreed to freeze oil production at the January levels.

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