Baku. 21 April. REPORT.AZ/ With US production on the rise, dramatic cuts in oil rigs (which also affects gas) and a growing belief that consumption might pick up on the back of expensive coal and a nuclear power slowdown. Report was told by Saxo Bank's commodities head Ole Hansen. "There might be a story building for natural gas", Hansen says.
According to Saxo's commodities head, natural gas is close to a 50% retracement of its recent setback and could be trading up to a dollar higher over the coming months.
But the market may be getting ahead of itself in terms of a shift in oil fundamentals, says Saxo Bank's head of commodities strategy, Ole Hansen. Producer hedging is returning, he says, which could slow the slowdown in shale oil production over the coming months, which is increasing the risk we see a 'W' as opposed to a 'V'-shaped recovery.
WTI crude rose for a fifth consecutive week and the 8.5% weekly gain was last seen in February 2011.
Natural gas was another winner as speculation grew that a floor could be in the process of being established following several months of weakness. An overall pick-up in demand some of which is due to switching away from coal combined with price friendly weather in the near-term has helped trigger short covering from traders holding a record net-short position. Rising demand is all good for the future prospects of rising oil prices but pricing it in at this early stage in the recovery increases the risk of a false dawn in oil markets.
"It's a bit tricky to focus on a 20,000 barrel reduction in the US when OPEC last month increased production by almost 900,000 barrels," says Hansen, "and they're expected to increase this even further in April according to the IEA".