The 20-month long rout in commodity prices is likely nearing an end says Tokyo-based investment boutique, Regency Associates. The bold forecast was made in a research note to institutional investors following the release of the latest US Department of Energy report on crude oil stockpiles.

The report said that the US had commercial crude oil inventories of 494 million barrels, an increase of a higher-than-expected 10.4 million barrels and the highest since 1930. While prices dipped immediately after the data’s release, they began to climb shortly afterwards, suggesting that investors may be willing to look beyond the supply glut that has seen prices fall by as much as 70% since the summer of 2014.

“The market’s grown accustomed to large inventory builds pushing prices even lower but the reaction to this one suggests that there is a change in sentiment taking place,” said Matthias Thon, Regency Associates’ head of commodities research.

“The recent deal struck between Russia and Saudi Arabia to freeze production will have played some part in that reaction but we think clearer signs that the high cost US shale oil producers are finally being forced to cut output is a major factor.”

Thon’s assertions appeared to be backed up by last week’s report from oilfield services company and driller, Baker Hughes which said that cash-strapped shale producers had idled another 8 oil rigs taking the number of rigs in operation in the US to just 392.

“We don’t see prices headed back to $100 any time soon but a range of between $35-$40 doesn’t seem unrealistic,” explained Thon.

About Regency Associates
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