The recent rally in oil prices might have built hopes for an upward trend in prices, but analysts warn that it might be coming to an end. July 3^rd saw oil hit a month high as the Euro Summit alleviated some uncertainty, gaining around 13% since the beginning of the month. However, analysts warn that there is more downward pressure on Crude Oil prices given the high levels of supply and low levels of demand. Manufacturing data from China is not encouraging and the other data from most countries indicate a slow-down of both consumers spending and manufacturing.  Iran’s recent military exercises has also caused supply side panic, but analysts claim that the main concern in the market  is more to do with the Chinese, US and European economies.

The gains made last week was a market reaction to both the European Union agreement and hopes for monetary stimulus in Europe and China. In the United States, factory orders also rose for the first time in three months signaling that the United States is not going through a recession as some analysts had feared. Aside from some troubles concerning Iran, there seem to be no supply concerns for the moment. The United State’s gasoline inventories have steadily increased this month with a small decline last week. The United States is the largest consumer of crude oil in the world and provides a good indication of any problems in the supply side.

Given that there are no solid signs of a recovery, Oil prices are likely to fundamentally remain low. A crude oil price around $80 looks stable with fluctuations on either side depending on investor’s sentiments. Since the market is psychologically driven, any important fundamental news is likely to make an impact. However, the trend in the past month has been sideways with low risk appetite amongst investors. Although it is unlikely that prices will fall again past $80, taking the latest rally as a sign of recovery would be premature and risky.

Note: The blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.