Oil rebounds on weaker dollar, lower US crude stocks

Published June 16th, 2011 - 07:47 GMT

Oil rebounded on Thursday, with Brent up 1.4 per cent, after the previous day's sharp drop and a falling dollar created buying opportunities against a backdrop of tumbling US crude inventories and uncertainty over OPEC output.

Brent crude for August, the front-month contract after July expired on Wednesday, gained $1.49 to $114.50 a barrel by 0322 GMT, while US crude benchmark West Texas Intermediate (WTI) rose 60 cents to $95.41.

On Wednesday, US crude plunged to $94.81, the lowest settlement since February 22, on signs of economic weakness as manufacturing unexpectedly shrank in the state of New York.

"It's a little bit of buying on weakness after the significant fall overnight, and also dollar weakness is causing prices to rise," said Ben Westmore, a commodities analyst at National Australia Bank.

"The economic data wasn't calamitous by any means, so there's support for WTI at $94-$95."

US crude inventories last week fell by 3.4 million barrels, more than twice as much as forecast, government data showed on Wednesday. They remain about seven per cent above their five-year average.

"There are still abundant stocks of oil globally but that abundance is likely to abate in the second half if we continue to see weak production levels from OPEC," Westmore said. "We know how foggy OPEC policy can be, and I wouldn't rely on Saudi Arabia increasing output until we see it in the numbers."

Saudi Arabia is expected to unilaterally increase crude production towards 10m barrels per day (bpd) this month, sources said on Tuesday, up from about 8.86m bpd in May, after the Organization of the Petroleum Exporting Countries last week failed to reach an agreement on output.

Any increase in output from OPEC countries in the Middle East would take weeks to be reflected in US inventories.

Crude stockpiles at Cushing, Oklahoma, the pricing point for WTI crude traded on the New York Mercantile Exchange, were down 1.14m barrels at 37.76m barrels, easing a glut that has weighed on US benchmark crude prices this year.

US imports from Canada fell 381,000 bpd for the week to their lowest level since December after the 591,000-bpd Keystone pipeline from Canada was shut for a week, helping to drain Midwest stocks. The line reopened for service on June 5.

In oil-producing North Africa, fights continued as Libyan rebels have pushed deeper into government-held territory from their base in the Western Mountains, taking two villages from which forces loyal to Muammar Gaddafi had been shelling rebel-held towns.

The United States said on Wednesday tensions in Bahrain were very high ahead of a planned national dialogue after weeks of pro-democracy demonstrations and urged the authorities to encourage people to speak out.

© I Media LLC 2022

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