Oil prices have fallen sharply since Friday following the referendum results from Britain. On Friday, both, Brent crude and WTI, dropped more than 5%. The pullback continued in trading today. The question is whether the rally in oil has ended following the surprise referendum results.
Remember that oil prices had an excellent run after dropping below $30 per barrel in February. Since February 10th, the Horizons NYMEX Crude Oil ETF (TSX: HUC) has gained more than 30%. This despite the recent pullback. While Brexit will put pressure on HUC in the near-term, the improving fundamentals of the oil market mean that the mid-to long-term outlook remains bullish.
Last week, a report from the American Petroleum Institute (API) once again showed a sharp decline in U.S. crude inventories. The draw down of crude inventories highlights the declining U.S. production. At the same time, demand growth is expected to remain strong. In a recent report, the International Energy Agency (IEA) raised its forecast for demand growth for 2016 following a strong first quarter. The IEA also expects a slowdown in non-OPEC production. Based on fundamentals, HUC has further upside in the medium-term.
