Oil bears quickly altering outlook

Just a month ago, analysts were casting doubt that oil prices could stay in the US$40 range, but many have changed their tune in the past week as oil prices rallied above US$50 a barrel for the first time this year.

Brent crude was above the mark Thursday morning for the first time since November, while Western Texas Intermediate was hovering slightly below US$50.

Higher prices come alongside a very rapid shift in sentiment. Gone are some of the bold calls made in January and February, when investor Dennis Gartman declared that oil would never rally above US$44 a barrel again in his “lifetime.”

“The pile-on trade is happening as all the people who said an oil rally couldn’t happen not so long ago have swung toward explaining why it has,” Scotiabank economists Derek Holt and Dov Zigler wrote in a note to clients Thursday.

Citigroup earlier this week declared that oil prices had “turned a corner” and that the worst was likely over for the beaten-down commodity. Goldman Sachs also joined the oil bull bandwagon, saying that it had underestimated the catalysts for higher prices this year.

WTI oil prices bottomed out on Feb. 11 at roughly US$26 a barrel.

The current rally has been helped by evidence that supplies have been tightening in May. Data released by the U.S. Department of Energy on Wednesday showed that supplies in the country decreased by 4.2 million barrels, compared with an expectation of a 2.5 million barrel decline.

Global supply has tightened on several supply disruptions. The wildfires in Alberta briefly halved the supply of Canadian crude, while civil unrest in Libya and Nigeria have also contributed to tighter conditions.