Singapore: Oil prices recovered on Friday as traders saw the previous session’s dip as an opportunity to snap up cargoes amid expectations that concerns over supply disruption from the Middle East would continue to support the market.
Brent crude for July rose 12 cents to $111.54 a barrel by 10:51am, while US oil for June gained 41 cents to $98.85 ahead of the contract’s expiry.
“Traders are seeing yesterday’s slide as a buying opportunity,” Victor Shum, an analyst at Purvin & Gertz, said in Singapore. “We are not likely to see an aggressive exit by participants from oil as there is no sign of a quick resolution to the geopolitical risk, and that is offering a support to the market.”
Brent is poised for a fall of 2% this week, swinging between a high of $113.56 a barrel and a low of $108.07. US oil is expected to remain little changed, trading between $100.99 and $95.02 this week.
The phase of consolidation comes after both crude grades lost between $15 and $20 in the prior two weeks, a correction some traders and analysts said was overdone.
For next week, Shum expects US oil to trade around $100 a barrel and Brent around $100-$115 a barrel, with a key driver being the value of the dollar against the euro.
Any fresh development on the sovereign debt issue in Greece and other economies in Europe will weigh on the euro, strengthening the dollar, which will in turn put pressure on commodities, as they are denominated in dollars.
On the other hand, a quick appointment of a new chief of the International Monetary Fund may support the euro on expectations of there being someone to take charge of long-term policy, weakening the dollar, Shum said.
“Overall, the market mood is of consolidation,” he said.
Reuters technical analyst Wang Tao says Brent needs to overcome a resistance at $113.20 per barrel to rise further towards $115, as its drop on Thursday has temporarily neutralized the signals, while US oil has turned neutral due to the drop.
On Thursday, US crude prices fell back below $100 a barrel as U.S. economic data stoked fresh economic worries and the International Energy Agency suggested members could release emergency stockpiles if producers did not increase supply.
US weekly jobless benefit filings remained above 400,000 for a sixth straight week, sparking concerns about labor market recovery.
“There has been some bearish news out of the United States this week,” Shum said. “And that has made the oil market overall bearish.”
Other data showed sales of previously-owned U.S. homes falling in April, and factory activity in the US mid-Atlantic region growing less than expected this month.
The International Energy Agency urged oil producers to boost supply to cut fuel costs and protect economic recovery and appeared to suggest its members could release emergency stockpiles if OPEC does not act.
Governments from the U.S. to China have been worried the surge in oil prices this year may derail the nascent global economic recovery as high costs accelerate inflation, paring consumers’ ability to spend, resulting in a slowdown in demand.
Prices have surged in part due to concerns that social unrest will spread from Libya and Syria to other countries that are major oil exporters, just at a time when demand from emerging nations such as China and India continues to rise.
Moammar Gadhafi will inevitably leave power, US President Barack Obama said, as NATO intensified its weeks-long bombing of government targets and said on Friday it had sunk eight Libyan warships.
“While geopolitics is not attracting as much headline news space as before, the risk to future disruptions remains,” Shum said. “Libya has reduced Opec’s spare capacity, and on top of this there is rising demand from emerging nations.”
Wildfires raging through northern Alberta are forcing oil companies to chop production, with more than 100,000 barrels per day shut in, while smoke from the blazes prompts oil sands operations to evacuate staff.
Demand for oil in countries such as China is being fed by rapid economic growth. The nation’s implied oil demand in April rose 8.8 percent from a year earlier to the third highest on record on a daily basis, according to Reuters calculations.
The country’s central bank governor, Zhou Xiaochuan, said on Friday the government was trying to find a balance between controlling inflation and supporting growth.
“China is engineering a soft landing and so far they have been successful,” said Shum. “These comments are giving a reassurance to the market that they are continuing with that strategy.”