Oil crossed back above $31 a barrel this week. Despite the signs of strength, one of Wall Street's top commodities analysts warns investors should not trust the rally.
"When we hit $26.20, there was a widespread sense that sell-off was overdone and that the market was too intensely bearish," said the global head of commodities strategy at RBC Capital Markets and a CNBC contributor. "However our desk thinks this relief rally stalls out at around $34 to $35 without a real fundamental catalyst." Oil has traded below that level for much of 2016, falling more than 15 percent year to date.
Croft further noted that inventories still remain far too high. Iraq may hit new record levels of production at 4 million barrels a day, up from current record levels of 3.7 million to 3.8 million daily barrels, according to reports Monday.
And, with international sanctions being lifted, Iran is preparing to introduce its own barrels to an already oversupplied market. Once described as hawkish when it came to production cuts, the nation is eager to profit from the freedom to sell internationally while simultaneously looking to make a dent in Saudi Arabia's market share.
On Tuesday, there was renewed optimism that a deal between OPEC and non-OPEC nations could be made at an emergency meeting. "Iraq's energy minister indicated that Russia and Saudi Arabia are becoming more flexible about output cuts. Saudi had made Russian cooperation a precondition for any OPEC cut. The Russians have spent the last year publicly rebuffing OPEC overtures for coordination."
Other than occasionally sharing information, Russia and Saudi Arabia have never cooperated on oil production.
For Croft, despite the potential for a deal, the supply and demand picture for crude remains a real threat.
"This is a technical market right now. It's about China. It's about the dollar. That's what makes us concerned," said Croft. "In this type of environment the macro headlines can take you almost anywhere because fundamentals are not driving this market. We're looking at the scale of the financial crisis sell-off [and see] the $25 range as the floor right now."