Oil rises after IEA says tide is turning

Oil demand

Oil demand

16 January 2015 – Brent crude oil rose more than $1 to above $49 on Friday after the West’s energy watchdog forecast the market downtrend would end, although analysts said a strong rebound soon was unlikely as global output continued to outweigh demand.

Oil prices have dropped by nearly 60% since June as production around the world has soared, outstripping demand at a time of lacklustre global economic growth.

Inter-governmental energy advisors the International Energy Agency, IEA, said oil prices could fall further before they recovered, but there were already signs lower prices were beginning to curb production in some areas, including North America.

“How low the market’s floor will be is anybody’s guess. But the sell-off is having an impact,” the IEA said in its monthly report on Friday. “A price recovery – barring any major disruption – may not be imminent, but signs are mounting that the tide will turn.”

“A rebalancing may begin to occur in the second half of the year,” it added.

Brent crude futures for March jumped to a high of $49.82, up $2.15 from Thursday’s close, when the front month was the expired February contract. Brent later eased back and was trading around $49.48 by 11120 GMT. US crude was trading at $47.15 a barrel, up 90 cents.

Analysts said Brent, which traded steadily above $48 a barrel before the IEA’s announcement, also had strong technical support.

“Our forecast seems to point toward a consolidation stage in the weeks to come,” Phillip Futures said in a note to clients. “We expect crude prices to trade range-bound between $44.75 and $50.69 for WTI March 2015 and $46.4 to $52.89 for Brent March 2015.”

Despite the price gains, oil was volatile after Switzerland jolted traders by abandoning its currency cap on Thursday.

The move triggered the euro’s biggest ever one-day drop against the Swiss franc and an 11-year low against the US dollar.

“Potential dollar strength into 2015 may be another factor at play in pressuring oil prices lower. The weakness in the crude space is likely to keep sentiment jittery,” OCBC bank said in a report.

Even in China, a key source of global oil demand, there were signs of weakness as the central bank announced new support measures after data showed a drop in bank lending and foreign investment growth falling to a two-year low.

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