Here’s a four-hourly chart of Brent crude.
Earlier this week, front-month Brent hit its highest intra-day level since the beginning of December. The latest leg of the rally since early April has seen the contract tack on around 19% low to high. But this is just part of a longer rally which began in mid-January which has seen Brent put on around 65% up until Wednesday this week.
Although it wasn’t the original catalyst for the recovery in crude, talk of an agreement between OPEC and non-OPEC producers to freeze output has been a major driver for this rally. The idea was that an accord could be reached between all significant players which would at least put a floor under prices. In this way those countries which rely on crude exports for a major part of their income would get instant relief. In some cases this should alleviate the severe economic problems that the low oil price was causing. Venezuela immediately springs to mind, but it is not alone in suffering from the sell-off in crude. The meeting takes place this Sunday.
As we can see oil has pulled back off recent highs. This is understandable given the rally that occurred in the run-up to the meeting. But where we go from here is anyone’s guess. After all, as with the US earnings season, expectations of any kind of agreement being reached are low. On top of this, most analysts feel that a production freeze is neither here nor there. Sustainably higher oil prices will only come about through production cuts – and that seems most unlikely to happen. Finally, even if there is a general agreement, not only will some notable producers be absent (US and probably Iran) the likelihood that producers will stick to their promises is very low indeed.
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