Commodities
©Bloomberg
When news of the highest crude stocks since the Great Depression hit oil traders’ screens on Wednesday, those expecting another rush of sell orders were in for a surprise.
After a momentary wobble, oil prices started to climb as the weekly report from the Department of Energy was brushed aside by investors who are increasingly prepared to bet the worst of a 20-month long price rout is over.
If their instincts are correct — and it remains a big if — it could mark a turning point in a vicious downturn that has shredded the budgets of producing countries, upended central bank policies and stoked fears of a deflationary spiral.
While the oil market remains weighed down by oversupply, for the first time in almost a year some big traders are prepared to look beyond a glut that sent prices spiralling below $30 a barrel in January.
“If you presume we have enough storage space for all the excess crude in the world then it is probable we have hit the bottom,” says Jonathan Whitehead, global head of commodities at Société Générale in London.
“When the oil price went below $30 a barrel, it started to feel like the market had gone too far,” he says. Prices that low threatened to quickly make large swaths of future oil production unviable, he adds.
Since hitting a 12-year low near $27 a barrel in January, Brent crude oil, the international benchmark, has rallied by more than third to near $37 a barrel, even as it remains well below the $100 level it traded near for most of 2010 to 2014 period.
Shares of oil majors BP, ExxonMobil, Royal Dutch Shell and Chevron have risen between 10 and 30 per cent since late January.
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