Oil Bounces After Big Losses

Crude oil
Crude oil drips from a valve at an oil well operated by Venezuela's state oil company PDVSA, in the oil rich Orinoco belt, near Morichal at the state of Monagas. Pix: Reuters

OIL prices recovered more than $1 a barrel from sharp losses on Thursday as the dollar eased but brokers said the downtrend could resume soon as record-high stocks and worries over slowing economic growth dampened sentiment.

Brent crude oil was up $1.05 at $47.31 a barrel by 1150 GMT. U.S. crude was up 90 cents at $45.65.

Both crude oil benchmarks moved up swiftly as the dollar slipped after the Bank of England decided unexpectedly to keep UK interest rates unchanged in the wake of the country’s vote last month to leave the European Union.

Tamas Varga at London brokerage PVM Oil Associates said the rally in oil was a response to the weaker dollar, but he said the rise could be short-lived:

“The oil market is oversupplied, OPEC production is on the rise and we had a rather bearish weekly U.S. oil stats report.”

Crude stocks in the United States fell less than expected last week, while distillate inventories rose the most since January and gasoline stocks unexpectedly increased, the Energy Information Administration (EIA) said on Wednesday.

A bearish assessment of the oil market by the International Energy Agency (IEA) on Wednesday also helped send both crude oil benchmarks down more than 4 percent by the close of trading.

The IEA said a glut in the global oil market was persistent and would put a lid on crude prices despite demand growth and declines in non-OPEC production.

“We know the process of rebalancing is taking place now, but there is still an overhang in oil and this will take time,” said Avtar Sandu, senior commodities manager at Phillip Futures.

The EIA report said crude inventories fell 2.5 million barrels last week, less than a 3-million-barrel drop forecast in a Reuters poll.

The report portrayed a traditionally busy summer driving season beset with unusually low demand, when many had expected record driving trips amid lower oil prices. Weak gasoline is putting crude under pressure worldwide with Middle East grades in particular hit by low Asian demand.

Technical analysts say crude may be poised for a move lower after three months of strength.

“The market moved up to $50 quite fast, so we might go down and see whether there is anything below $40,” said Sandu.

Varga at PVM said a first target for Brent could be its 100-day moving average at $44.84 a barrel, a level that could be reached in the next week.