Oil Prices Hit Six-Month High On Nigerian Outage, Goldman Forecast

Oil prices have jumped over 1 percent on Monday to their highest since October 2015 on growing Nigerian oil output disruptions and after Goldman Sachs declared that the two-year run of oversupply was coming to an end.

In the new report, the Wall Street firm argued that the oil market has actually flipped into deficit. Supply disruptions around the world of as much as 3.75 million barrels per day (bpd) have wiped out a glut that pulled down oil prices by as much as 70 percent between 2014 and early 2016.

Moreover, the unexpected outages caused by wildfires in Canada and pipeline attacks in Nigeria are likely to keep the market in deficit through the second half of this year, according to Goldman. There is also continuing worry about the amount of crude Venezuela will be able to produce as the country’s economy continues to plunge deeper into crisis.

These were reasons that prompted the bank to raise its U.S. crude price forecast to $50 a barrel for the second half of 2016 from a $45 estimate in March. Besides, the bank also expects global oil demand to grow by 1.4 million barrels a day in 2016, versus 1.2 million predicted earlier.

However, prices were up only $2 a barrel, reflecting abundant inventories in the market, according to Goldman. The pace of draws in inventories is what will drive prices, as uncertainty remains with future supply-demand balance. Data from the Energy Information Administration show that U.S. stockpiles of crude shrank in the week ending May 6 for the first time in more than a month, but stored supplies still remained close to the highest since 1929.

Still, the return of some of the output and higher-than-expected U.S., North Sea, Iraq and Iran production means the shortfall is likely to be kept at 400,000 barrels a day versus the 900,000 previously forecast.

brent d1

Fig. Brent D1 Technical Chart

Brent, the marker for more than half the world’s oil, is currently trading $48.94 a barrel in London. Brent has been tracing along an up-move after bouncing off the support level at 43.55. The RSI of 67.62 is about to enter the overbought zone, suggesting that the bullish trend will be dominant for a long period of time.

Trade suggestion

Buy at 49.03, Stop loss at 48.51, Take profit at 49.72

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