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Oil falls to 3-month lows. Will prices rebound anytime soon?

July 2016

July 28, 2016 | 10:30 | Dubai

On Tuesday, crude oil prices dipped to three-month lows of $42.36 a barrel, down 12% in July alone. After rallying over 25% in the second quarter (Q2), both Brent and WTI futures have given up around 10% to start Q3. So will oil continue its downtrend? “Oil prices on both sides of the Atlantic have fallen to 3-month low as bullish traders found little reasons to keep betting on higher prices. Brent has declined by more than 15% after posting a 2016 high last month at $52.86 and WTI lost 16%. When prices started to fall from their peaks it was first considered as correction, but investors are getting worried its becoming a trend,” says Hussein Sayed, Chief Market Strategist at FXTM.

In fact, short term fundamentals should get us worried as ongoing oversupply likely to keep dragging prices lower, he added.

A report by Emirates NBD Global Markets & Treasury observes, “Draws in US inventories were about the only positive indicator the market could hold onto despite growing signs that the glut was moving into product stockpiles and not just in the US. Oil markets are performing to a very similar pattern to 2015 when a Q2 rally faltered and prices ended up pushing much lower.”

Although U.S. crude oil inventories dropped for 10 straight weeks according to EIA, gasoline stocks have been on the rise.

“Unfortunately, the U.S. summer driving season, long considered to be a major driver of the oil market wasn’t robust enough to boost gasoline consumption and as we get closer to refiners’ maintenance season, oil demand will fall further,” says Sayed.

Even the technical indicators are bearish. Both benchmarks fell below their 100-days moving averages on Monday for the first time since March, this would likely add to the pressure as many traders view it as selling signal. However, as Sayed adds, “I still consider a dip below $40 is a good opportunity to jump in if you’re a long term investor, with target above $50 until year end.”

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