Brent Crude breaks $50 but investors should be cautious says Axa Wealth

26th May 2016

Oil prices have risen above $50 a barrel for the first time this year following a fall in US crude inventories.

Brent crude was up 33 cents at $50.07 a barrel although the other global benchmark US benchmark West Texas Intermediate is trading just below $50 for now at $49.85.

US commercial crude oil inventories fell by 4.2 million barrels in the week to May 20, according to US Department of Energy data.

Some of this is attributed to wildfires in Canada which has disrupted supplies.

Adrian Lowcock, head of investing, AXA Wealth said: “Supply has fallen more quickly than anticipated largely due to uncontrollable and unpredictable events as wildfires in Canada cut production by around 1m barrels a day and militant action in Nigeria also impacted supply there. The price of Brent crude is now up around 80% from its January lows and the outlook for the price has improved significantly. However supply issues do remain as Iran has been increasing its production whilst Saudi Arabia has indicated it might raise production further in 2016. As the price rises oil producers will begin to bring rigs back online adding more supply. Given this outlook the oil price is expected to stabilise around the $50 mark for the rest of the year.

“Investors should be careful now when considering investing in oil as the easy money has been made. The price has recovered rapidly but is still some way off its peak and could remain volatile.  The effects of the weaker oil price have not played through the oil sector or been fully reflected in companies’ profits and losses.  At $50 a barrel oil majors will be feeling more comfortable and dividends will be better supported but oversupply issues could quickly return.”

Leave a Reply

Your email address will not be published. Required fields are marked *