US crude futures are sharply higher this afternoon, after exhausted oil bears failed to push prices under $40 a barrel. It was a close thing, though, with WTI hitting a low of $40.06/barrel before snapping much higher. By mid-afternoon, WTI was trading at $42.18, up 3.5% on heavy volume.
Crude Prices At Recent Lows
US crude was down 8% last week, as the oil bears remained firmly in control. Reports that global oil stockpiles had reached an all-time record of 3 trillion barrels only reinforced the downward pressure. Sentiment wasn’t improved when the Baker Hughes rig count was reported to have gained by two wells. WTI closed down 2.8% Friday, at $40.74, a two-month low.
Oil Bears Thwarted
Bearish speculators moved in early Monday to finish their job. Their goal was to force the capitulation in US crude, by breaking through solid support at the psychological $40/barrel level. They came within pennies of being successful, before prices snapped sharply upward.
The main impetus may have been French airstrikes against the town of Raqqa, the “capital” of the Islamic State in Iraq and Syria, also known by their Arabic abbreviation “Daesh,” (which they hate.) Ten French warplanes from bases in Jordan and the UAE dropped twenty bombs Sunday on suspected Daesh administration and control buildings. More French airstrikes were carried out on Monday. French president Hollande vowed that airstrikes by French aircraft participating in the anti-Daesh coalition would be intensified. He also ordered the French aircraft carrier Charles De Gaulle to the Persian Gulf to assist in the air campaign.
Daesh is also attacking enemies closer to home, with two deadly suicide bombings last week in Hezbollah-controlled area of Beirut. Hezbollah is fighting on the side of president Assad in the Syrian civil war.
On the non-combat front, news that OPEC production was down marginally for the third month probably helped sentiment a little. Saudi Arabia and Iraq were responsible for a drop of 120,000 barrels a day in total OPEC production for October. Refineries that had scheduled maintenance should be coming back online at full throttle to help work through the backlog of crude that’s choking storage facilities.
Of course, the underlying problem of production exceeding demand isn’t going away soon. The oil bears may be just taking a nap, instead of entering hibernation.
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