Oil prices rose 21.5 percent in April, the highest in seven years

Analysts at Bank of America estimate that there could be the first annual decline in global oil production in April or May since 2013. However, some analysts warn that the price increase is based on speculation, while oil inventories and production remain at high levels.

Oil prices in global markets rose last week for the fourth consecutive week, recording the largest monthly jump in seven years throughout April. In the London market, the price of a barrel rose 6.7 percent last week to $48.13, while it jumped 21.5 percent in April, marking its largest monthly increase since May 2009. In the U.S. market, the price of a barrel increased by 5 percent last week to $45.92, and in April, its price rose by 20 percent.

Oil prices reached their highest levels in the last five months as investors hope for increased demand and reduced production.

Analysts at investment bank Jefferies state that the market has “come into better balance” and that the situation should further improve in the second half of the year. Analysts at Bank of America estimate that there could be the first annual decline in global oil production in April or May since 2013. However, some analysts warn that the price increase is based on speculation, while oil inventories and production remain at high levels.

According to a Reuters report, the production of the Organization of the Petroleum Exporting Countries (OPEC) reached its highest levels in recent years in April.

– The problem is that the rise in oil prices is not correlated with the fundamentals. The fundamentals – high inventories and high production – have not changed, says Hamza Khan, a strategist at ING.

On the other hand, the rise in oil prices is supported by the weakness of the dollar, which fell by 5 percent against the Japanese yen and by 2 percent against the euro last week. A weaker dollar typically contributes to rising oil prices as prices are expressed in dollars. When the dollar weakens against other currencies, oil becomes cheaper for countries with those currencies, thus increasing demand.

Support for prices has also come from data showing an increase in gasoline consumption in the U.S., as well as Chinese oil imports. Additionally, Baker Hughes reported that the number of oil rigs in the U.S. fell last week for the sixth consecutive week, by 11 rigs, to 332, the lowest level since November 2009. For comparison, in the same week last year, there were 679 rigs in the U.S.

This supports the thesis that the trend of falling oil prices, which has lasted nearly two years, has ended. Since mid-2014, oil prices have plummeted from over $100 to approximately $40 per barrel.

Due to increased production and weak demand, oil prices plunged deep below $30 at the beginning of February, the lowest in the last 12 years, but since then they have surged nearly 80 percent as investors hope for a reduction in the gap between supply and demand. Despite the rise in prices, supply in global oil markets continues to exceed demand daily, so analysts are unsure whether the price increase can continue.