Oil prices continue its series of gains on Tuesday as investors covered short positions amid concerns over the existing global supply glut.
International benchmark Brent crude edged up as much as 1 percent to $46.37 while US West Texas Intermediate (WTI) added 0.8 percent to $43.79 per barrel.
The raises are suggesting that the market is somewhat looking optimistic so far this week after last month’s losses.
Brent and WTI biggest decline was on May 4 at the price of $48.30 and $45.57 respectively.
The market has fallen several times since news about the oil market has been consistently on the negative side but has been trying to climb back up in response to that news which may prove that there is a positive aspect to any good news.
Analysts have said that this may not just be the year for crude oil, pointing out that it already lost 20 percent and fell in each of the last five weeks and eight of the last ten.
They also suggested that it is on track for its first worst half since 1997 and if oil prices get another decline similar to last week once more, crude oil could likely experience its worst half since 1991.
On the other hand, based on research, oil prices have always been volatile and bearish markets are very common since 1985 oil has been in a bear market, more than 20 percent down its 52-week track gain and above one third of the time.
Moreover, these periods are seen to be the best times to start long positions as oil prices on average have gained 18 percent a year after while oil prices tend to be flat a year later when it is not in a bear market.
But with oil prices constantly increasing, the commodity could likely go up towards a significant recovery over the upcoming weeks and if history could be considered as a basis, it is also telling that oil will return to bull market sooner than expected.
Although, there is still that lingering chance that the cartel’s efforts could be outdone by the North American supply which may mean that oil prices would not be able to rise above the $50 target but there would still be some adequate benefit to capitalize on.
Hedge funds and other money managers seems to have lost optimism over the Organization of the Petroleum Exporting Countries’ (OPEC) attempt to resolve the glut problem cutting earlier bets on crude futures and options.
Australia and New Zealand Banking Group (ANZ) said in note that the exchange data showed that investors had severed their net long positions in WTI and Brent to the lowest point in 10 months last week.
The bank also stated that traders are anticipating the Energy Information Administration (EIA) conference in Washington where US shale oil manufacturers are expected to give their viewpoint on the recent market situations.
Analyst Merrill Lynch said that the demand had not grown enough to take in the excess output.
One possible reason for the low demand is even though US shale oil producers have raised their production and countries like Libya and Nigeria have increased their output, new buyers are not in a hurry to purchase it regardless that the price of oil per barrel has declined.