Oil swings back into bull market

The main global oil benchmark rose above $ 50 a barrel on Thursday afternoon, taking crude back into bull market territory, as hopes of an Opec production cap and a surprise drop in US crude stockpiles helped power a recovery in prices.

Less than three weeks after falling into a bear market — defined as a drop of more than 20 per cent from the recent peak — oil has now gained for six straight days and is up over 20 per cent from this month’s low.


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Brent crude, the international benchmark, and its US counterpart, West Texas Intermediate, respectively rose 2.1 per cent and 3.1 per cent on Thursday to $ 50.89 and $ 48.22 a barrel.

Both benchmarks have rallied strongly since last Monday after Opec said it would be holding an informal meeting next month. But some traders remain sceptical about the meeting producing any form of production freeze, and said dovish tones from the US Federal Reserve was also aiding the crude recovery.

After minutes of the Fed’s July meeting were released on Wednesday, expectations of an interest rate rise in December have fallen from 54.8 per cent to 45.8 per cent. It has also meant a weaker US dollar, further helping to buoy oil prices.

“The meeting is unlikely to result in more than additional statements in an attempt to support oil prices,” said Robert Haworth, senior investment strategist at US Bank, in a strategy note. “Fundamentals, in our view, continue to point to a rangebound oil market as long as the market requires further rebalancing between supply and demand.”

The gains are also being fuelled by hedge funds and speculators that have turned more positive on oil, raising their bets on the commodity. Two separate reports this week showing a surprise fall in US crude stockpile and record US gasoline demand have further added to the bullish mood.

So far the gains have not led to a strong gain for equity markets. The S&P 500 has risen 1.7 per cent since the oil low on August 2. On Thursday the energy sector for the S&P 500 was 1.78 per cent higher and the Dow Jones Industrial Average was up 1.5 per cent since August 2, having been on the rise since the end of June.

Oil prices have been volatile this year, hitting a 12-year low in January before rallying 90 per cent to a year-high in June. Prices then came under pressure once again, falling back into a bear market last month after signs of oversupply in refined crude products like gasoline.

Rising oil should be accommodative to junk bond prices, as struggling energy companies receive some respite. A widely tracked high yield index run by Bank of America Merrill Lynch is currently at its lowest yield in over a year at 6.43 per cent.

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