Oil reverses trend, rally may continue for 'a week or two'

Abu Dhabi - Brent for February settlement traded at $38.18 a barrel on the London-based ICE Futures Europe exchange, up 2.4 per cent.

Oil prices climbed on Monday as Saudi Arabia severed ties with Iran a day after its embassy in Tehran was attacked by a protesting crowd.
Futures rose as much as 3.5 per cent in New York, extending Thursday's 1.2 per cent surge.
West Texas Intermediate for February delivery rose as much as $1.28 to $38.32 a barrel on the New York Mercantile Exchange, and was at $37.60 as of 9.16am local time. The volume of all futures traded was about 23 per cent higher than the 100-day average.
Brent for February settlement traded at $38.18 a barrel on the London-based ICE Futures Europe exchange, up 2.4 per cent, after earlier rising 3.3 per cent.
"I think that the market reaction towards what is currently emerging out of Saudi Arabia and Iran just goes to show that there is still interest in purchasing oil," said Lukman Otunuga research analyst at FXTM.
The breakdown of diplomatic relations between Saudi Arabia and Iran is preventing oil from following other commodities lower after Chinese stocks slumped seven per cent, forcing a trading halt, according to Bloomberg newswire.
The investors will have to continue closely monitoring the developments as "traders might have just found an excuse to push prices higher," the analyst said.
As of yet, "there are no changes to production and the current gains indicate that this is a reaction to a hypothetical opinion that if tensions continue to escalate, production levels might change.
A breakdown below $35 should encourage sellers to send prices towards the next relevant level based at $32.40
Dominic Schnider, head of commodities and Asia-Pacific foreign exchange at UBS's wealth-management unit in Hong Kong said oil's recent advance could last "a week or two."
"The Brent oil may decline near $30 a barrel before a reduction in US output helps rebalance global markets in the second half of the year," he said.
Commodity prices may drop another 10 per cent because of oversupplied markets, said Dominic Schnider.
The global oversupply worsened last year as US stockpiles rose more than 100 million barrels, the largest annual growth in Energy Information Administration data going back to 1920, and the Organisation of Petroleum Exporting Countries (Opec) abandoned output limits to defend market share. The Middle East accounted for about 30 per cent of global oil output in 2014, according to the US Energy Information Administration.
- haseeb@khaleejtimes.com