Oil prices are at their highest level since early mid-July 2015, up 96% since hitting its multi-year low in mid-February.
While the market is showing some strong signs of life, with prices well above its 20-day moving average, I am not convinced that prices can move much higher in the near-term and could remain under pressure in the long-term.
The gains oil has been making in the last few days has been on relatively low volume, indicating that the rally is losing some momentum.
Looking at retracement levels, $53.50, could create some profit taking as the threat of a global recession re-emerges in the marketplace.
Lower global growth is one of the main reasons why I am slightly bearish on oil at these current levels. The World Bank has trimmed its 2016 growth forecasts, expecting the global economy to grow 2.4% this year, down 2.9% from is January projections.
Last week OPEC members met and the meeting ended without an agreement on production cuts. The reality is that we remain in a low-growth environment, ultimately reducing demand in oil and on the other hand the marketplace remains well supplied with oil.
I don’t think that this environment is going to change any time soon.
One key element for the demand side will the U.S. summer driving season. If this is lackluster then you can expect a pretty sharp selloff.
For now there appears to be initial support between $48 and $47.50 with the next level to watch around $44.
Charts coursey of Barchart.com
