2 September, AtoZForex.com, Lagos – Citibank analyst, Ed Morse sees no real substance behind the 30% rebound in oil on Monday, and may have rightly predicted that oil is still in for a downward spiral as the commodity resumed its fall on Tuesday.
In a report to clients, Morse analyzed that the 30% spike higher in crude prices over the last 3 days, “looks driven more by sentiment than by reality.”
Morse states in the note that: “In Citi’s view, it’s time to ‘sell the news and buy the facts.’ This is reinforced by today’s strong intra-day gains around 8%, which appear driven by a misread of market data and financial headlines. Notably, nearby time spreads are lagging the move higher in flat price, which is consistent with weak fundamentals.“
A major factor which he points to is the market reaction to the statement from OPEC’s latest bulletin that the 12-member oil cartel, “stands ready to talk to all other producers.” This statement prompted optimism among Markets and news organizations, interpreting it to mean that OPEC may have conceded to the fact that it needed to — and was prepared to — lower production in the face of oversupplied markets.
CITI’s view on this is that:
“In our judgment, this was a gross misrepresentation of the Bulletin’s editorial which was wistful about such a dialogue,” Morse wrote. “Almost all OPEC officials are still on holiday and the lack of further reporting suggests none actually were involved in suggesting there was a change in policy.”
In the bulletin, OPEC stated that the 12-member Organization of Petroleum Exporting Countries, “will continue to do all in its power to create the right enabling environment for the oil market to achieve equilibrium with fair and reasonable prices,” .
According to Morse, another point worthy of note is the fact that internally, OPEC has a problem with regard to who would actually take the fall and cut production. The Saudis could conceivably cut this fall, but Morse thinks this would be a function of internal consumption declining rather than a major strategic shift.
As oil rebounds temporary, low prices may remain for some time to frustrate swing producers to leave the market. According to the market analysis of Morse, further along he stated: “low prices might need to be in place for perhaps a few years.”