Oil is popping -- but don't expect the recovery to last

Oil has surged to its highest levels for three months on Monday morning, as the recovery seen since mid-February continues.

The price of oil has popped by more than 1.5% on Monday morning, with the European benchmark, Brent crude, breaking above the $39 mark for the first time in 2016.

Just before 10:00 a.m GMT (5:00 a.m. ET) the price of Brent is up 1.58% to $39.33 (£27.80), while West Texas Intermediate, the key US benchmark, is up by 1.67% to $36.52 (£25.82).

Here’s how oil looks:

Oil has recovered for record lows in the past couple of weeks, with some analysts arguing that the commodity has finally found bottom after an almost constant 18-month slide downwards.

The rally has largely been driven by improving market sentiment but was also given a big boost last month when OPEC, the cartel of oil-producing countries, announced a freeze in production going forward. That helped to pacify fears about the global oil glut, which has been a key driver of oil’s slide.

As a result of oil’s jump on Monday morning, shares in some oil firms are, predictably, seeing big gains. One of the biggest independent oil groups in the UK, Premier Oil, has seen shares jump 17% today and exploratory firm Tullow Oil has also seen a big pop.

Despite the price of oil recovering to its highest levels this year, analysts have warned that the recovery is fragile, and that in the long term, prices are going to remain very low. Norbert Ruecker, the Head of Commodities Research at Swiss private bank Julius Baer says that there will be no “long-term recovery” in the price of oil. Here’s what he had to say:

Shale’s cost deflation, Iran’s return and Mexico’s market opening suggest that supplies remain ample for longer, overshadowing the industry’s investment cuts for the time being.

Supply glut fears have taken a back seat as of late with the oil market’s focus shifting from pessimism over ample inventories to optimism over declining US production. We still believe that oil prices experience a short-term bounce but no long-term recovery but see further upside in the near term.

It’s not just Julius Baer worried about the recovery, though. As first quoted by the Financial Times, Kevin Norrish, an analyst from Barclays points out that three of the key reasons for oil’s rally are pretty shaky. He notes that market optimism about China is “somewhat premature”, many sectors of the American economy that consume high levels of commodities “still look soft”, and the OPEC production freeze is “far from certain to succeed.”

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