Is oil showing signs of fatigue after an impressive rally?

Although oil prices has impressed many this year with a spectacular comeback from decade lows to a phenomenal rally that equated to almost a doubling of price in less than six months, its no wonder a close eye has been stalking price action of late as it nears medium term resistance that some believe could offer a harsh reality check for oil bulls.

Part of the reason we've seen a spike in price is due to the fact that US shale gas producers responded hastily when reasonable thought proved harmful in believing a rebound in price was nearer than fully understood in the dynamics leading down the value.  Needless to say the added economic deterioration in a number of OPEC member nations helped spur on a resurgence that's outshone returns of yesteryear.

We now have a scenario where oil prices are lofty enough to fulfill breakeven or even profit-making criteria for US suppliers to justify opening taps up again which is proving to be the case as found in the article below posted by the Economist.

 I've been saying this for a number of weeks combined with the price stalling at critical levels it could suggest that this sentiment is gaining traction amongst oil traders with a relative balance between buyers and sellers in the weeks gone past from a state where buyers far outstripped sellers driving up prices.  

Oil costing $50 a barrel is leaving American frackers hopeful https://t.co/gFQZbmWBPZ pic.twitter.com/2GdGAT19PW

— The Economist (@TheEconomist) June 23, 2016

As this is said further evidence shows that finance institutions that were once happy to accept the Cinderella prospects fed to them from producers seeking funding are stepping away from the market of lending to this sector with largely exposed European bankers opting to strave off capital hungry borrowers by refusing to issue new debt or alternatively finding buyers for these loans that have taken on additional risk.

What does this tell us?

It says European banks don't foresee the same optimal outcome that featured in the reason to grant long term borrowings to oil producers but instead of holding ground and patiently wait for the usual cycle to correct itself, this theory no longer stands as these institutions see harsher consequences if they were to hold these debt instruments for anytime longer otherwise why would they be selling?

To go further it also adds momentum to those who believe US shale producers will restart operations and possibly cause prices to slump again. The fact that European banks are doing this now paints the extreme optimism given to the situation.

Where does it leave us?

Quite simply the oil market will be left in a volatile oil market that will continue to exhibit wild movements in price until stability is found but even this is uncertain as of now. The flexibility of shale gas producers mean suppliers are able to shift between markets in search of profitable returns making equilibrium dependent on the surplus/deficit of either chosen produce.

Europe's banks dumping loans as they pare exposure to oil industry https://t.co/evIcU5EvkQ via @business @LCasiraghi pic.twitter.com/pVxui2BTLz

— Shelley Smith (@SLSmth) June 23, 2016