Perth: Oil prices snapped three straight sessions of decline and rose slightly to hover above $70 a barrel on Monday, but analysts said sentiment remain fragile and prices could be again be hit by macroeconomic pessimism.
US crude for July delivery rose 27 cents to $70.31 a barrel by 8:08am, London Brent crude fell 47 cents to $71.21.
“Oil market sentiment remains weak and market confidence is still being rattled by the uncertain economic outlook,” said David Moore, a commodities analyst at the Commonwealth Bank of Australia.
“Oil market inventories also remain high, so I suspect we will continue to see that pattern of sharp volatility for awhile.”
Since striking a 2010 high just above $87 a barrel on 4 May, crude prices have fallen in eleven of the last fifteen trading days and touched a low of $64.24 on Thursday last week, its weakest since September last year.
Germany’s parliament approved on Friday its portion of a $1 trillion safety net to stabilise the euro as fears swirled that Europe’s debt crisis and tougher financial regulation may choke economic recovery.
However, worries persist that Greece’s debt troubles could spread to other indebted nations, dragging down Europe’s economy and curtailing trade to the United States and Asia.
Calls for other European economies to cut spending and slash their budget deficits have also sparked worries that the region’s economy would slow, curtailing energy demand.
Although oil prices will no doubt remain at the mercy of broader macroeconomic pessimism, analysts at Barclays Capital said recovering demand in the US and other non-industrialised economies, such as China, the Middle East and India, would lift prices.
“With oil fundamentals improving fast, we expect prices to pick up once the phase of severe risk reduction abates,” Barclays capital oil analyst Amrita Sen said in a report.
In the short-to-medium term, other potentially supportive factors include the start of the US summer driving season and the start of the hurricane season in the US, which lasts from June through November.
Some meteorologists have predicted an unusually destructive hurricane season which could cause offshore oil production in the Gulf of Mexico to shut for extended periods.
The US dollar index rose 0.42% against a basket of currencies on Monday, while Asian stocks remained on the backfoot on weak demand for risky assets and currencies.
Volatility will be the name of the game on Wall Street this week as uncertainty over the euro-zone debt crisis remains a potent factor.
On the geopolitical front, Iran said it would abandon an offer to ship some of its uranium stockpile abroad if the United States imposes new sanctions, adding that Washington’s continued determination to impose sanctions could even lead Tehran to review its cooperation with the UN nuclear agency.