Oil hit 2016 highs and was on track to its largest monthly gain in a year on Wednesday, as the market awaited a USA government supply-demand report that an industry group indicated will show lower crude stockpiles.
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Some traders expected crude prices to fall in coming days, saying the market had run up too much, too fast on exaggerated bets for stockpile and production declines.
There has been a 3% increase in oil prices after the dollar value weakened following the US Federal Reserve’s announcement that interest rates would remain unchanged.
A weak dollar has also provided support as it makes crude cheaper for customers using other currencies.
The global commodity price rout saw the cost of crude drop to 34 United States dollars a barrel on average in the first three months of 2016 compared with 54 U.S. dollars a year ago. The Energy information Administration (EIA) reported USA commercial crude inventories rose by 2 million barrels to a total of 540.6 million barrels in the previous week.
U.S. benchmark West Texas Intermediate for delivery in June advanced 70 cents to US$46.03 a barrel on the New York Mercantile Exchange.
Oil prices have risen 75 per cent in about three months or less since hitting 12-year lows of around $27 (U.S.) a barrel for Brent in late January and about $26 for US crude in mid-February.
Crude stocks at the Cushing, Oklahoma, delivery hub rose 1.8 million barrels, EIA said. The World Bank boosted its forecast for oil prices this year, projecting that demand will pick up and US output cuts will steepen in the second half of 2016.
NY crude hit $45.62 and Brent North Sea oil struck $47.47 – the highest points since November.
Oil companies rushed to cut costs and curtail investment as oil prices tanked over the past year-and-a-half, striking 12-year lows in January.
“That got reversed and went on to show that (a production freeze) was a fairly small part of what had been supporting the price and really, it’s the supply outlook for the USA coupled with the dollar that is really driving returns”.
But analysts said the gains, partly prompted by a slightly weaker USA dollar, would likely be short-lived due to lingering worries about a global supply glut.
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“Market fundamentals continue to suggest that the combination of robust demand and weak supply growth will move global oil markets closer into balance by the end of the year”, he said. Earlier, it hit its highest level for the year at $45.18.
