DUSHANBE, May 27, 2016, Asia-Plus — Oil prices hit $50 a barrel on Thursday for the first time in seven months, then bounced below that level and settled lower on the day as investors worried robust price gains could encourage more output and add to the global glut,
Reuters
reports.
The steep climb of Brent North Sea oil prices from as low as $27 at the beginning of the year came despite Iran”s ramping up of its oil output to presanction levels near 4 million barrels a day, and the failure of OPEC, Russia, and other major producers to agree on a production freeze this year.
Analysts attribute the unexpected recovery in prices to a strengthening of the U.S. dollar caused by a rise in interest rates engineered by the Federal Reserve, as well as temporary supply cuts caused by wildfires in Canada and unrest in Nigeria, two top producers. Oil prices are denominated in dollars worldwide.
The Wall Street Journal
notes that the move above $50 was seen as a key moment by many analysts and traders. Many trade based on momentum and the patterns of other traders, and a lot of options have strike prices that kick in at $50 a barrel. Some will see crossing that line as a signal that prices are rising and they should buy, but others are considering whether that level will lead more producers to sell and ramp up output.
According to
The Wall Street Journal
, prices are still up 89% from a 13-year low hit in February.
Financial Times
reports that months of cheap petrol and an improving jobs market have spurred US drivers to use their cars more. The U.S. Government reportedly estimates that petrol use in the US will this year surpass a previous record set in 2007.
Oil demand is also growing in India, China and Russia, which together used about 1m b/d more in the first quarter of 2016 than in the same period a year before, according to the International Energy Agency.
“Driven by strong gasoline and petrochemical feedstock consumption, we see potential for year-on-year global oil demand growth to reach 1.5m b/d in 2016,” said Facts Global Energy in a recent report.
