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Oil Nears $50 per Barrel, Further Gains Might Be Limited

May 16, 2016 at 14:09 by Andriy Moraru

Crude oil prices rose sharply on the back of continued supply outages and a bullish outlook from Goldman Sachs. Brent Crude rose 2.66% to $49.1 per barrel and WTI crude traded 2.58% higher at $47.4 per barrel, their highest levels in 2016.

Goldman Sachs, which was bearish on crude oil, raised its outlook for the second quarter 2016, to $45 from $35 per barrel in mid-March. For the second half of 2016, it raised its outlook from $45 to $50.

“The oil market has gone from nearing storage saturation to being in deficit much earlier than we expected,” Goldman said in a note on Sunday. “The market likely shifted into deficit in May … driven by both sustained strong demand as well as sharply declining production,” it said, reports Reuters.

For 2017, Goldman forecast crude oil price to drop to $45 per barrel in the first quarter of 2017. However, by the fourth quarter of 2017, it expects crude oil prices to reach $60. For 2017, it has forecast an average price of $52.5/b down from an earlier forecast of $57.5 per barrel.

The supply in Nigeria is at its lowest in decades due to sabotage by warring factions whereas the unrest in Venezuela has disrupted around 188,000 barrels per day of production. The Chinese output has dropped the most since 2011 and the US production is below 9 million barrels per day, down 8.5% from its peak.

However, it is not going to be a one-way journey for crude oil prices with OPEC pumping is at its highest level since 2008.

Among all the bullish news, the oil producers and merchants have increased their short positions on crude to the highest level since 2011, for the week ended May 10, according to data from the Commodity Futures Trading Commission.

Technically too, $50 per barrel might prove to be a tough resistance level for the WTI crude, hence traders should trade with caution at these levels.

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