Oil cannot sustain its current price, say analysts – who warn it is getting too expensive after soaring to a 28-month high over the past 10 days.
US crude briefly hit a high of $57.69 on Friday before easing back to $57.01, and fell lower in pre-US trading on Monday to $56.88 – but still 9.4% higher than the October price of around $52.
“Oil is already much too expensive even if the latest developments in Saudi Arabia justify a certain risk premium on the oil price,” said Commerzbank head of commodity research Eugen Weinberg on Friday.
Shale drilling will pick up
He and others have warned that at these prices US oil shale becomes economic, and producers can switch on supply at a moment’s notice.
“At a WTI price of well over $50 a barrel, drilling activity should pick up again,” he said.
Oil has been rallying since OPEC countries agreed with Russia to extend production cuts in a bid to raise prices.
That rally was intensified by the purge of Saudi royals and ministers by the Crown Prince Mohammed bin Salman.
Weinberg claims Brent crude, trading at around $63.40 on Monday morning, “is currently too high by at least $10” a barrel.
He says demand for oil from OPEC countries will only be slightly above current production levels in coming years.