Oil prices regain ground as the dollar weakens
Oil futures rebounded from early losses on Thursday as the dollar continued to weaken, but the market’s focus on signs of growing crude stocks capped gains.
Brent crude was on track for its strongest March since at least 2007. U.S. crude earlier in the day fell to a more than two-week low, but it was set for its biggest March rally in 14 years.
The euro hit its highest level against the dollar since October. A weaker greenback makes dollar-denominated commodities such as oil more affordable to holders of other currencies.
Brent crude futures rose 60 cents to $39.86 a barrel by 11:31 a.m. ET (1531 GMT).
The front-month contract for U.S. crude futures was up 57 cents to $38.89 a barrel, after dropping to $37.57, the lowest since March 16.
Still, high global stocks put the sustainability of the gains in question — data on Wednesday showed that U.S. crude stocks reached yet another record high last week despite an 11-year high in seasonal refinery utilization.
“The door is open for lower prices,” said Hamza Khan, head of commodity strategy with ING. “There’s a backlog of oversupply that needs to be worked out of the system.”
U.S. crude stockpiles rose by 2.3 million barrels to 534.8 million barrels in the week to March 25, the seventh week at record highs, data from the U.S. government’s Energy Information Administration showed.
The increase was less than analysts’ expectations of a 3.3-million-barrel build after crude imports fell by 636,000 barrels per day (bpd) to 7.4 million bpd.
Oil analysts in a Reuters poll also raised their average price forecasts for 2016 for the first time in 10 months, but also cautioned the rally could fade near term.
In the past week, oil prices had started to track lower.
Crude prices have risen about 50 percent since mid-February on optimism over a proposal by several major oil-exporting countries to freeze production and signs of falling U.S. output.
Despite the freeze proposal, OPEC crude output rose in March to 32.47 million bpd from 32.37 million bpd in February, according to a Reuters survey, while Iran is expected to add another half a million bpd of oil within a year.
Elsewhere in Asia, the sustained weakness in oil prices has suppressed upstream oil and gas production, consultancy BMI Research said. It said in a report weaker prices are “limiting opportunities to stem natural declines in aging assets.”
But the recent rally has allowed U.S. producers to hedge their production at higher prices, which could keep more of them from shutting down.
“It’s hard to see how we could sustain this rally,” said Harry Tchilinguirian, global head of commodity market strategy with BNP Paribas, adding that the price rise “contained the seeds of its own demise.”