Oils rally in recent days is just a dead-cat bounce, analysts warn after Trump stoked tensions with Iran

Reuters

• Oil prices have recovered in recent days after US President Donald Trump stoked fresh tensions in the Middle East by instructing United States Navy to “shoot down any and all Iranian gunboats” if they harass US ships at sea.
• US oil prices turned negative for the first time in history on Monday and fell to a low of -$40.32 a barrel, Brent also fell to a 22-year low.
• As of Friday morning in Europe, both Brent crude and WTI have fallen from the open, but are broadly stable.
• Naeem Aslam, chief markets analyst at Avatrade, said: “There are still concerns that the rally that we have experienced is only a dead-cat bounce.”
• Follow the price of oil live with Markets Insider.

Oil prices stabilised on Friday after days of turmoil but concerns mount that its recent recovery will be short-lived. 

West Texas Intermediate, the US oil benchmark, was trading just below $17 a barrel, and Brent crude, the international benchmark, also just above $21 a barrel. 

Prices hit historical lows earlier in the week WTI fell more than 321% on Monday to trade as low as -$40.32 a barrel reflecting an increase in unused oil as demand tanks during the coronavirus pandemic, leaving millions of barrels of oil in need of storage that wouldn’t normally be needed.

Lack of storage options, particularly at a key storage facility in Oklahoma, and lower demand for the commodity during the ongoing coronavirus pandemic has tanked prices in recent days, culminating in Monday’s stunning fall.

A tweet by US President Donald Trump on Wednesday instructing the United States Navy to “shoot down any and all Iranian gunboats” if they harass any US ships at sea, stoked fresh tensions and boosted prices. 

Analysts warned Friday that the worst is not over yet for oil prices as the fundamentals still point to a weak picture. 

Naeem Aslam, chief markets analyst at Avatrade said oil’s recent recovery “a dead-cat bounce”.

“As for the oil market, WTI West Taxes Crude Oil is trading higher by 2% today and the price does look somewhat steady. However, there are still concerns that the rally that we have experienced is only a dead-cat bounce.”

Aslam added: “Speaking from a fundamental perspective, nothing has changed in terms of supply and demand, and it will be a surprise if we do not see the price falling again next week”.

Neil Wilson, chief markets analyst at Markets.com, said: “Oil is proving to be more stable. Oklahoma’s energy regulator has said producers can close wells without losing their licences. Donald Trump started to look desperate, stoking tensions with Iran. You would not be surprised if it were a dastardly plan to boost oil prices.”

Wilson said all eyes will be on the weekly Baker Hughes report due to be published later Friday.

The closely watched Baker Hughes oil-rig report showed that as of last week, oil-rig counts in the US were 544, down roughly 35% from the same time in March.

Oil prices and rig counts are strongly correlated. Higher oil prices make production more profitable, encouraging more producers to operate.