How High Will Oil Climb?

WTI crude oil prices were near steady in U.S. trading, but hovering near Wednesday’s nearly five-month high. Nymex crude is trading above $45.80 a barrel. The other key “outside market” finds the U.S. dollar index lower and near the multi-month low scored in mid-April. The weaker greenback recently has been a bullish underlying factor for the precious metals and for the entire raw commodity sector. Brent oil added 63 cents to 47.56 while crude oil added 56 cents today. Oil prices jumped 3% yesterday, hitting their highest level since November, after the US Federal Reserve voted to keep interest rates unchanged once against in its latest monthly meeting. The Fed’s decision continues a good week for oil prices, with research by an industry group earlier this week indicating US crude inventories had dropped in the latest week, according to Reuters.

In its statement, the US central bank implied it was in no hurry to raise rates, continuing the increasingly dovish tone it has taken since raising rates for the first time in December.

Meanwhile, the latest figures revealed the US economy had slowed to its weakest pace in two years in Q1, growing by just 0.1%, down from 0.4% in the previous quarter and below analysts’ forecasts of 0.2%.

Trade Arabia Business said that record crude storage figures may have spurred some investors to take profits on Thursday by closing positions betting on a rise in prices, traders said. Government data on Wednesday showed that U.S. crude stocks climbed 2 million barrels last week to an all-time peak of 540.6 million barrels.

Despite slipping from the highs, analysts said oil market sentiment had clearly turned bullish, and further price rises were likely.

“Nothing appears capable of stopping the surge in oil prices at the moment,” Commerzbank said on Thursday. Analysts also said there were immediate supply risks from Venezuela, which is facing a severe electricity crisis, that needed to be factored in.

“Venezuela is an immediate supply risk. In the next two weeks there is potential to have some serious disruption,” Olivier Jakob at consultancy Petromatrix said.

Falling U.S. output has also been a supporting factor in oil’s recovery.

U.S. Energy Information Administration (EIA) data showed that crude production fell to 8.94 million barrels per day (bpd) last week, down almost half a million bpd from last year.

But Commerzbank warned that oil prices at $50 a barrel should make drilling attractive again for some shale producers.  “Some producers are also likely to use the higher price level for hedging transactions, which would likewise prevent any future fall in production,” the bank said.

Analysts said further bullish momentum could emerge due to the ongoing weakness in the dollar, which is down almost 6 per cent this year against a basket of leading currencies. A weaker greenback makes dollar-traded crude cheaper to buy for countries using other currencies.

In an interview with AFP, IMF regional chief Masood Ahmed also said the oil-exporting Gulf states should press forward with diversifying their revenue bases, faced with persistent low crude prices. OPEC heavyweight Saudi Arabia on Monday floated a raft of reforms aimed at diversifying its almost total economic reliance on crumbling oil prices. This year will see “a continuation of a low oil-price environment, so we are going to see further – maybe $100 billion or so – in terms of lower revenues from oil exports,” Ahmed said of the GCC which groups Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.