Oil prices will rebound soon: MUFG

Oil markets remain significantly “oversold”, and both Brent and WTI will rebound from their current bearish market mode, MUFG noted in its latest report on Wednesday.

“The front end of the Brent futures curve has moved back into contango (conditions wherein the forward price is trading higher than the spot price, suggesting a bullish outlook), having been in backwardation (conditions wherein the forward prices is trading lower than the spot price, suggesting a bearish outlook) since September 2017,” the report added.

Both crude benchmarks have declined by more than 30 percent since their four-year highs witnessed at the beginning of October. “Technical fundamental indicators signal a rebound is on the horizon, with the current 14 day Relative Strength Index (RSI) below 30 – the critical threshold level flagging excessive declines – for the first time since May 2017,” MUFG noted.

The report said the fundamental shift in oil markets from previous apprehensions concerning a supply crunch to now a real concern surrounding oversupply appears overdone.

“Whilst the drivers of the recent sharp sell-off in crude has reflected greater supply/spare capacity, we deem that there is ample pessimism already priced into the front end of the oil price curve,” it concluded.