London: Oil held just under $80 a barrel on Monday, paring much of an earlier gain to a six-week high, with the dollar down as investors reassessed the prospect of an earlier US interest rate rise than previously expected.
An extended oil refinery strike in France, a report of rising crude oil processing in China in January and tensions over Iran’s nuclear programme also supported prices.
US crude for March delivery rose 7 cents to $79.88 a barrel by 3:21pm. It earlier reached $80.51 - the highest since 13 January. Brent crude rose 9 cents to $78.28 a barrel.
“Skeptical as we are of the advance, we cannot fight the current run higher as prices are now within striking distance of their recent highs and likely on track to test them,” said Edward Meir, analyst at MF Global.
The dollar was weaker on Monday as investors reassessed the Federal Reserve’s broader interest rate intentions after last week’s surprise discount rate hike, prompting a degree of recovery in risk appetite.
A weaker dollar makes crude and other dollar-denominated commodities cheaper for holders of other currencies and tends to support oil prices.
The US currency held slight gains versus the euro and gained support from reports that Germany had prepared plans under which countries using the single currency would provide aid worth between 20 billion and 25 billion euros for Greece.
Workers at Total’s French refineries continued their strike action, raising concern about fuel supplies in the coming days. The French government pledged to prevent any oil supply problems in the country.
Tension about Iran’s nuclear work also provided support. Iran has earmarked potential sites for new nuclear enrichment plants and construction of two of them could begin this year, a nuclear energy official said on Monday.
Oil prices rose 7.7% on the week, their largest single-week percentage gain since October, thanks to a combination of positive economic data and growing tensions over sanctions against Iran.
More supportive data emerged on Monday from China, the world’s second-largest oil consumer and probably the source of much of this year’s forecast growth in global oil demand.
The China Petroleum and Chemical Industry Association (CPCIA) that said China processed 30.14 million tonnes of crude in January, up 29% from a year earlier.
Some think the rally has further to run. Goldman Sachs said that benchmark oil prices will rise to $85-$95 a barrel this year as global economic growth accelerates. Others are less convinced.
“Oil looked toppish at $80, that’s the upper end of the trading range,” said Carsten Fritsch, analyst at Commerzbank.
“It’s unlikely to see a level of $80 being sustained given still-weak fundamentals. Physical demand is still lacklustre, outside China at least.”