Oil breaks $39 for first time in 2016; oil stocks rocket

Brent crude has broken above $39 per barrel for the first time this year, as the oil rally rolls into another week.

Brent is climbing for the sixth consecutive day, its longest winning streak in four months. This morning, the international benchmark has risen 2 per cent to a three-month high of $39.50 per barrel, writes Joel Lewin.

WTI, the US benchmark, has climbed as much as 2.2 per cent to $36.72, its highest level since the first trading day of the year.

Brent has surged more than 40 per cent from its January low, as the number of rigs drilling for oil in the US has dropped to a post-crisis low, and fears over slowing global growth have moderated.

Shares in oil groups have also rebounded sharply.

Shares in Premier Oil, one of the largest independent British oil groups, have jumped another 17.3 per cent today. The shares have almost tripled since hitting a record low in January.

Shares in Seadrill, the offshore oil rig operator backed by shipping billionaire John Fredriksen, have surged another 45.5 per cent today, after jumping 38 per cent on Friday. These are the two largest one-day rises since the company listed in 2006.

In the last six trading sessions alone the shares have bounced 240 per cent. However, they are still down 83 per cent since mid-2013, wiping nearly $2bn off Mr Fredriksen’s fortune.

Tullow Oil shares are up 9.3 per cent today.

Mining stocks are also rallying onwards and upwards, building on gains from last week, with Ukraine-based iron ore miner Ferrexpo up 10 per cent today and 276 per cent since December, and South Africa-focused platinum miner Lonmin up 17.4 per cent today and 418 per cent since January.

But Barclays analyst Kevin Norrish warns markets shouldn’t get carried away with themselves, as the rally is still fragile.

“It’s growth Jim, but not as we know it…” he warns, adding:

First, optimism over China seems somewhat premature. Our China economists point out that any fiscal policy expansion this year is likely to be very moderate and will struggle to overcome the softening GDP growth trend

Secondly, the US data improvement is relative, and the big picture is that many of the most important commodity-consuming sectors of the economy still look soft

Thirdly, OPEC’s production freeze policy is far from certain to succeed. The market is well aware that the countries that have so far signalled support for the policy are mostly producing at close to capacity

Second and third charts courtesy of Bloomberg