…As oil on track for biggest monthly gain in seven years
Oscarline Onwuemenyi, with agency reports
30 April 2016, Sweetcrude, Abuja – Oil is on track for its biggest monthly gain in seven years, boosted by a weak dollar and a decline in US production that has helped to ease concern about a persistent supply glut.
Brent crude, the international benchmark, has gained over 22 per cent in April — up more than 70 per cent from its January lows. The US marker, West Texas Intermediate, has recorded a similar increase this month.
However, after talks in Doha failed to secure an output freeze, a looming production rise from some OPEC producers such as Saudi Arabia and Iran may drag down the stronger price performance seen this month.
“Scheduled restart in United Arab Emirates and Nigerian production, combined with a continued Iranian ramp-up, could result in OPEC production exceeding our third-quarter 2016 assumption,” said analysts at Deutsche Bank.
The rebound in prices has come as investors position themselves for the biggest decline in non-OPEC supply in 25 years and what they hope will be a more balanced market later in the year.
“Fresh year-to-date highs have been this week’s predominant theme,” said Tamas Varga at London-based oil broker PVM. “The relentless march higher continues.”
On Friday, Ice June Brent traded as high as $48.50 a barrel before paring gains to trade at $47.94. Nymex June WTI dipped 17 cents to $45.85 a barrel after hitting $46.78 earlier in the day. Both oil markers hit their highest levels since November on Friday morning, having rebounded more than 70 per cent from 13-year lows reached earlier this year.
This powerful performance has been driven in part by signs of declining US oil production and a weakening dollar, which makes oil and other dollar-priced commodities cheaper for holders of other currencies. This has helped offset the bad news.
“The ongoing oversupply and record-high US crude oil stocks are being ignored,” said Carsten Fritsch, analyst at Commerzbank.
Many analysts and forecasting groups expect the oil market to rebalance later this year as supply and demand align. Outages in cash-strapped producer countries such as Venezuela, they say, will help support prices.
But some have warned 2016’s price moves could follow the same trajectory as last year when a peak in May was followed by a sharp drop. At the very least, any price gains could be capped.
“The latest rebound in oil prices is set to prolong the supply glut and further delay the market’s rebalancing,” said Norbert Ruecker, head of commodities research at Julius Baer.
US oil output is holding up against expectations, said Mr Ruecker, who added: “We see more downside than upside to oil prices.”
At the same time, US commercial crude stocks hit a new record this week, while traders point to large quantities of unsold crude being held at sea.
Away from oil, gold extended its gains since the start of the year to more than 20 per cent. As the US dollar weakened, bullion advanced $18.20 to $1,284 a troy ounce — a seven-week high.
“Once again, it is dollar weakness that is fuelling today’s rally,” said INTL FCStone. Gold is up more than 4 per cent over the week.