After every extensive sell-off, there is a relief rally, and this is exactly what we are experiencing in oil prices. The front end (June) contracts for Crude and Brent have rallied and the oil prices are trying to win the investor communities confidence back. However, it will take a very long time for that to happen, especially after the massive damage that the negative prices have caused. Whenever you will look at an oil trading contract, it will always remind you of the possibility of negative prices.

Nonetheless, the extreme contangoconditions that we experienced earlier this week have eased off, to someextent, and this has also taken the pressure off oil sensitive currencies.

The fact that the EIA data (releasedyesterday—the number showed more surplus of oil) failed to push the prices lowerwas a clear sign that all the bad news is already priced in, and a  reliefrally is on its way. This mean-reversion rally can push the prices up byanother few percentages.

In terms of crude oil’s front-monthcontract, the price is up more than 145% from its low of  $6.50, but theprices are still down over 39% since the massive sell-off (when crude oil’sJune contract fell from the 25 dollar level). For now, it is immenselydifficult for the prices to climb back above the $20mark, especially for theJune contract.

However, if the price does cross the $20mark, and stays above that mark, then we will be out of the woods. The questionis how can that happen?

Well, for a start, the global economiclockdown is going to ease off next month and it is a positive sentiment thatwill triumph the supply glut concerns. Investors will pay more attention to thegood news, life returning to normality, rather than the excessive supply.

On the fundamental side, the real reason that we have seen the oil prices moving higher is mainly due to two factors. Firstly, it is the tweet of the US president that has escalated the tensions between the US and Iran after he cleared the US military to attack the Iranian boats if they harass the US navy ship. According to Trump that is harassment, many may disagree with his definition of harassment.

Secondly, there is a real possibility of a substantial production cut from the US oil producers as they are likely to be paid to keep oil underground. This payment will be in the name of saving the US shale oil industry.

The bottom line is, that there is no doubtin saying that oil prices have been hit the most and there was a real discountespecially in the front-end contracts, but the question is if the rally infront months is going to push the prices higher for later month contracts. Thiscan only happen if investors become more optimistic about oil prices.