Oil prices stabilize as dollar’s rally stalls
Oil prices pared losses to trade roughly flat on Monday as the dollar reversed course, though gloomy economic prospects in Europe and Asia weighed on crude futures.
The softening comes a week after crude prices hit 2016 highs on the back of a quicker-than-expected rebalancing in physical oil markets.
Crude futures clawed back some ground as the dollar‘s rally stalled in morning trade.
Brent crude oil futures was up 1 cent at $50.55 per barrel by 11:03 a.m. ET (1503 GMT), after striking a session low of $49.61.
U.S. crude was up 3 cents at $49.10 a barrel, having earlier fallen to $48.16.
The dollar has risen more than 1 percent from June lows against a basket of currencies, lifted by the prospect of a potential hike in U.S. interest rates, concerns over Asia’s economy and a fears that Britain will vote later this month to leave the European Union.
A strong greenback makes fuel imports for countries using other currencies more expensive.
Commerzbank analyst Carsten Fritsch said rising worries that Britain will vote later this month to leave the European Union, which sent stocks spiraling lower on Monday, could also erase more of oil’s recent gains.
“The most recent oil price increase was driven by bullish market sentiment,” Fritsch said. “A Brexit could turn market sentiment around.”
There are also worries about faltering growth in China, largely due to industrial overcapacity and spiralling debt, while Asian and European shares fell sharply on concerns over the economic fallout of a Brexit that have lurked in the background for weeks.
On Monday, the European Central Bank also said the fall in oil prices over the past two years would add less to global growth than earlier thought and the overall impact could even be negative.
Oil traders have already sold out of long positions that have profited from an almost doubling in crude prices since hitting over decade lows earlier this year.
“Oil may be looking healthier than it has in a very long time, but it is not yet out of the woods,” Barclays said in a note.
Some analysts expect oil demand in Asia and especially China to remain strong.
Vehicle sales in China rose 9.8 percent to 2.1 million units in May, the China Association of Automobile Manufacturers said on Monday, in the strongest year-on-year growth since December 2015.
In the first five months of 2016, sales were up 7.0 percent.
“Against the backdrop of low international oil prices, Chinese crude oil demand will remain well supported this year as demand continues to gain traction from stockpiling activities and refining use,” energy consultancy FGE said.
“We expect Chinese crude oil imports to grow by 730,000-760,00 bpd this year,” it said.
OPEC sees more balanced market
An OPEC forecast released Monday said the world oil market will be more balanced in the second half of the year as outages in Nigeria and Canada help erode a supply glut that has weighed on prices more quickly than expected.
The Organization of the Petroleum Exporting Countries in a monthly report said its production fell by 100,000 barrels per day (bpd) in May led by Nigeria. It maintained forecasts of seasonally higher demand for its crude in the second half of the year and falling supplies outside the group.
“The excess supply in the market is likely to ease over the coming quarters,” OPEC said in the report.
“Shutdowns in Nigeria and Canada tightened the oil market markedly and brought supply and demand more closely into alignment earlier than many had expected, bolstering prices.”
OPEC’s report points to excess supply of 160,000 bpd in the second half of 2016 if the group keeps pumping at May’s rate.
Excess supply in the first quarter was 2.59 million bpd, OPEC said.