Christian Lawrence, Research Analyst at Rabobank, notes that oil has traded a ‘W’ so far this year with WTI falling from USD 37 per barrel to a low of 26.2 before rallying up to 34.8 and then back down to a new low of 26.05 and then back up to 34.7. Key Quotes “This ‘double bottom’ formation provides an upside target of USD 44 should we see a confirmed close above the 35-handle. That said, fundamentally we favour oil trading within the 30’s as the area of least resistance for price action this year. Indeed, we certainly would not rule out oil prices retesting the lows seen this year. As we have seen throughout the sell-off in oil that began at the back end of 2014, trying to pick a low can be a dangerous game. We would highlight though that when adjusted for inflation oil prices have never dipped below the 20-handle and we would be surprised to see oil trading in the ’teens’. To our mind, the speculative bid seen in the 20’s would likely increase and prevent a continued sell off in oil prices below there. That said, we have been guilty of prematurely calling the lows ourselves and in this environment it is impossible to rule out such a move. Our base case is for WTI to remain primarily sub-35 for the remainder of the year but for any move into the 20’s as likely to prove short-lived. Supply: Last year supply exceeded growth by 2 million barrels/day (“mbpd”) and although this is expected to fall to 1.1 in 2016 according to the International Energy Agency, this remains a sizeable gap and will prevent the rebalancing that markets are waiting for. The IEA estimates the gap will fall to 0.1 in 2017 before demand starts to outpace supply in 2018. That said, given record inventory accumulation prices may well remain low even once the supply-demand dynamic has balanced given the need to wind down those stocks. On February 16, Saudi Arabia and Russia called for a “production freeze” along with Venezuela and Qatar. Saudi Arabia’s Ali al-Naimi stated that the "freeze is the beginning of a process, and that means if we can get all the major producers to agree not to add additional balance, then this high inventory we have now will probably decline in due time. It's going to take time" and that "it is not like cutting production. That is not going to happen because not many countries are going to deliver even if they say they will cut production – they will not deliver. So there is no sense in wasting our time seeking production cuts". Demand: Our concerns over a lack of an obvious global growth driver and our resultant bearish growth. Indeed, the US remains the bright spot globally but the light is dim and flickering. The IEA’s latest forecasts point to an expected average annual growth rate of 1.2 mbpd up to 2021. Last year, demand increased by 1.6 mbpd on the back of lower prices, but we see the risk for 2016 and 2017 as skewed toward lower-than-expected demand given the potential for global economic growth to slow further.” For more information, read our latest forex news.