Oil Prices Jump on Inventory Report, but Downside Risks Remain

Oil prices jumped on the latest inventory report, but one energy trader said downside risks remain for crude.
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Oil prices jumped on the latest inventory report, but one energy trader said downside risks remain for crude. The EIA reported a surprise 4.2-million barrel drop in crude supplies on Wednesday. But even as oil prices rose, Luke Rahbari, Chief Investment Officer at Stutland Volatility, said oil will remain under pressure in the near term due to the strong U.S. dollar and weakness in China. Rahbari pointed to the big drops recently in China's stock market.'The second biggest economy in the world is having volatility close to a biotech stock,' said Rahbari. 'Eight percent a day, four percent a day, so people are just fleeing and they are selling the assets that they can. Oil is one of them.' Still, Rahbari said he's surprised by how far oil has fallen in recent weeks and offered his thoughts on where oil will trade next, pointing out that any price gains will be limited. ‘Oil has shocks to the upside, it rarely has shocks to the downside,’ explained Rahbari. ‘So you always have geopolitical shocks, what could happen in Russia, and Iraq and Libya, etc. So you kind of watch for that. In a very unscientific way, I like oil trading at even numbers. When it broke through 50, I think it's going to get dragged down to 45. If it can keep 45 and kind of move up, it will drag back up to 50 again.’ Rahbari added that $45 per barrel is a big number to watch in terms of support for the market.