Oil closes above US$50 for first time in 8 months to continue dramatic rebound

Crude maintains upward momentum towards rebalancing with US inventory numbers expected to have dropped further, analysts say.

Oil prices held above US$50 in Asia on Wednesday as the dollar remained weak, boosting demand for the commodity.

“The WTI crude oil price closed above the $50 mark for the first time in eight months, resulting in a cheerful rally in energy stocks,” said Margaret Yang, an analyst at CMC Markets in Singapore.

The market is expecting US department of energy weekly crude inventory numbers to drop further after recent losses, with an anticipated fall of 3.25 million barrels, she added in a note.

Oil has mounted a dramatic rebound since it fell to historical lows in January and February when crude was in free fall to nearly $25, prices not seen since 2003.

But the commodity is still far short of peaks of over $100 in mid-2014, before an economic slowdown and supply glut set in.

US dollar weakness is also a key factor in this week’s oil bounce.

The US Federal Reserve chief Janet Yellen said Monday that despite a weak jobs report, the US economy was on track towards recovery, and any hike in borrowing costs would be gradual.

“Markets digested Yellen’s seemingly dovish comments, with risk appetite tentatively making a comeback,” the IG analyst Bernard Aw wrote in a note.

Crude output has also been dented in recent weeks by wildfires in Canada and unrest in Nigeria, blunting the failure of major world oil producers to impose production caps. Oil traded near the highest close in more than 10 months as weekly US industry data showed crude stockpiles declined, trimming a glut.

Futures were little changed in New York after advancing 3.6 per cent the previous two sessions to close above US$50 a barrel. Inventories fell by 3.57 million barrels last week, the American Petroleum Institute was said to report. Government data Wednesday is forecast to show supplies dropped. Repair work on a key Nigerian oil pipeline operated by Royal Dutch Shell is underway, according to a person familiar with the situation.

Oil has surged more than 90 per cent from a 12-year low in February amid unplanned disruptions and a steady slide in US output, which is under pressure from the Opec policy of pumping without limits. American petrol consumption is set to climb to a record this summer as the lowest retail prices in more than a decade encourage people to take to the roads, according to government data.

“There is a bit of upward momentum for oil at the moment and it’s most likely to continue,” said Ric Spooner, a chief analyst at CMC Markets in Sydney. “Demand growth is moving the market closer to balance. While the market has definitely improved, large inventories may limit gains.”

Brent for August settlement was 1 cent higher at $51.45 a barrel on the London-based ICE Futures Europe exchange. The contract rose 89 cents, or 1.8 per cent, to $51.44. The global benchmark traded at a premium of 47 cents to WTI for August.

Crude supplies at Cushing, Oklahoma, the delivery point for WTI and the biggest US oil-storage hub, fell by 1.31 million barrels last week, the API said Tuesday, according to people familiar with the figures. Nationwide inventories slid by 3 million barrels, according to the median estimate in a Bloomberg survey before an Energy Information Administration report Wednesday.

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