Brent crude surpasses $50 a barrel for first time in 2016

SINGAPORE: Brent crude passed $50 a barrel for the first time in 2016 on Thursday after data showed a fall in US crude inventories, adding to expectations of a tightening global market.

At around 0330 GMT, Brent North Sea crude for July delivery was up 33 cents at $50.07 a barrel while US benchmark West Texas Intermediate was trading 29 cents higher at $49.85.

The $50 price point is a key level and traders are watching to see if it can be sustained.

The gains came as markets digested news that US commercial crude oil inventories fell by 4.2 million barrels in the week to May 20, according to US Department of Energy data.

This is largely due to wildfires in the western provinces of Canada – the biggest supplier of crude to the US market – which have curbed oil production.

Canada’s central bank had also announced Wednesday that the fires would impact the country’s economic output numbers.

“News about the US inventory, coupled with Canada’s announcement gave prices the boost it needed to push past the $50 mark,” CMC Markets trader Alex Wijaya told AFP.

Both pricing standards have been edging close to the $50 mark for a fortnight but a strong US dollar had curtailed gains.

A firmer greenback, which has been performing stronger against major currencies, makes dollar-priced commodities like oil more expensive, hampering demand.

Rally overdone?

Some analysts are sceptical about how long the current prices will hold.

Aside from the stronger dollar, major exporter Iran has also vowed to keep up oil production after the lifting of Western sanctions in January, further fuelling the supply glut.

“The remarkable over 80 per cent rally in oil since earlier this year may have been overdone, as the underlying macro conditions have not changed proportionally,” IG Markets analyst Bernard Aw said in a client note.

“This suggested that speculative trades have driven up the price these months, and may not be sustainable.”

The global oil market nosedived from above $100 a barrel two years ago to around $27 in early 2016, plagued by a stubborn glut.

Prices have since rebounded, aided by the weeks of wildfires in Canada as well as unrest affecting energy infrastructure in Nigeria, Africa’s biggest oil exporter.

Markets are now eyeing a June 2 meeting of the Organization of the Petroleum Exporting Countries in Vienna where it is hoped a deal on reducing production can be reached.

But Tehran’s stance appeared to reinforce market doubts that OPEC – of which Iran is a member – will take any firm action to curb oversupply.

Last month, talks in Doha involving OPEC members and other major producers such as Russia failed to reach a deal to cap production.

About the Author

Dave R. Brown
Dave moved to Gulf Feed from Burnbrae Asset Management, where he headed up the new business team of the financial services division. Aside from his expertise in delivering value for a large network of clients, Dave has a wealth of experience in the areas of the financial markets and implementing change management. This was gained from his time managing GECR, an equity research company, where he returned it to profitability from a period of heavy losses. Dave has a background in mathematics and his previous experience, prior to Burnbrae Asset Management, was as an investment analyst for MSCI.

Be the first to comment on "Brent crude surpasses $50 a barrel for first time in 2016"

Leave a comment

Your email address will not be published.


*