Market Overview

Why The Oil Rollercoaster Could Continue After Memorial Day Weekend


Oil prices rebounded last week as traders took news that U.S. inventories declined as a sign of improving demand. The commodity has been bogged down by worries about global demand as drilling around the world has created a supply glut.

However, with the U.S.'s largest driving weekend kicking off on last Friday, many are wondering if crude prices will be able to hold on to the gains come Tuesday.

Dwindling Inventories

Data from the US Energy Information Administration last week showed that US commercial crude inventories declined by 2.7 million barrels last week, a far cry from the 1.1 million barrel decline that analysts had been predicting.

Related Link: All The 'Experts' Were Wrong On Oil

The figures look promising for US demand, but some say the bulk of that decline came from the West Coast and won't have much of an effect on prices.

Rise In Road Trips

Part of the bounce in oil prices came from reports that this Memorial Day weekend, historically a popular driving holiday, will bring drivers out in droves.

The American Automobile Association forecast some 33 million people taking to the roads this weekend, the highest volume of travelers over the holiday weekend since 2005.

What's Next?

Some analysts caution that oil prices are unlikely to hold on to any significant gains as the fundamentals still suggest that there is much more oil on the market than is being demanded.

With prices making their way toward $60 heading into the weekend, many say traders should be prepared for a drop and that oil could finish the year around $50 per barrel.

However, others say the economic improvement in the US and Europe could continue to support prices and eventually drive the commodity up to $70 or $80 per barrel.

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