Oil Gains From Four-Year Low on Signs That Slide Is Overdone

A pumpjack. Photographer: Justin Hamel/Bloomberg Photo by Justin Hamel /Bloomberg

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(Bloomberg) — Oil climbed from the lowest close in four years after technical measures suggested crude’s recent plunge may have overstretched. 

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Brent advanced to trade near $61 a barrel after tumbling almost 10% during the past six sessions, and West Texas Intermediate rose to around $58. The two benchmarks recently dipped into oversold territory on the nine-day relative strength index and pierced their lower Bollinger Bands, both pointing to a market that has fallen too quickly. Chinese markets also reopened after a holiday.

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There are also signs that lower oil prices are starting to have an impact on supply outside of the Organization of the Petroleum Exporting Countries. Diamondback Energy Inc., the largest independent producer in the Permian Basin, trimmed its own full-year production forecast on Monday and said it expects onshore oil rigs across the US industry to drop by almost 10% by the end of the second quarter.   

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Oil declined on Monday after OPEC+ agreed over the weekend to a further supply boost starting in June, with Saudi Arabia warning of additional hikes if overproducing members don’t fall in line. That’s exacerbated bearish headwinds for futures, which are near a four-year low as trade tensions between the world’s two biggest economies threaten global growth.

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The focus is “now turning from an already priced-in OPEC+ production hike towards demand, which again depends on the global trade war and especially the ability to find solutions,” said Ole Hansen, head of commodities strategy at Saxo Bank. “US shale producers signaling tougher months ahead in terms of maintaining production is also supporting prices.”

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US President Donald Trump said he was willing to lower tariffs on China at some point because the levies are so high that the two countries have essentially stopped doing business with each other. He added that there were no plans to speak with his Chinese counterpart this week.

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There’s been tentative signs of weakness in the market, with several price gauges easing in recent sessions. The premium of Oman and Murban grades over the regional Dubai benchmark has narrowed, while the backwardation structure in the Brent benchmark was the smallest since February, excluding expiry periods. 

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