Oil hits reverse on surging US reserves, strong dollar

24th March 2016, Comments 0 comments

World oil prices have snapped a five-week run of gains on the back of the strong dollar, and soaring US crude stockpiles that have worsened the global supply glut.

The market began the week on Monday on the front foot, extending recent sharp gains on revived optimism that producers would strike a deal to freeze output levels.

Crude futures held steady on Tuesday, showing little impact from triple suicide bombing attacks in Brussels that left 31 dead and 300 injured in the Belgian capital.

Precious metal gold however won a brief boost as investors sought the traditional haven investment amid heightened anxiety over Brussels, but fell over the course of the week.

Oil prices tanked Wednesday on news that US crude inventories ballooned last week, indicating weaker demand in the world's top oil consuming nation.

The commodity was also weighed down by the strong greenback, which makes dollar-priced crude more expensive for buyers with weaker currencies, sapping demand.

- US inventory report 'trigger' -

"The end of this (upwards) run was coming," said analyst Craig Erlam at trading firm Oanda, when questioned about this week's reversal in oil prices.

"While (oil) may have arguably been oversold at its lows, nothing fundamentally changed enough to warrant it being above $40 and still climbing.

"As it turns out, it was the (US) inventory number that was the trigger," Erlam told AFP.

Oil tumbled Wednesday after the US Department of Energy (DoE) said commercial reserves surged 9.36 million barrels to 532.5 million barrels in the week to March 18. That was far higher than market expectations.

"That huge build in crude inventories really suggests that ... the overall supply situation remains imbalanced," said CMC Markets strategist Michael McCarthy.

"These are big numbers and the market cannot just shrug that sort of thing off."

A strengthening US dollar put further pressure on prices after a Federal Reserve official said it could raise interest rates again as early as next month.

"We've been expecting US dollar strength to resume and it certainly has," McCarthy told AFP.

WTI had risen last week above $40 for the first time since December, boosted by a sharp drop in the dollar.

At around 1700 GMT on Thursday, US benchmark West Texas Intermediate (WTI) for delivery in May was down 63 cents to $39.16 a barrel.

Brent North Sea crude for May delivery dropped 35 cents to $40.12 per barrel compared with Wednesday's close.

- Talks loom next month -

Losses were however capped this week by hopes that producers, including members of the OPEC group, would agree to freeze output levels in Doha on April 17.

OPEC secretary-general Abdalla el-Badri said Monday that 15 or 16 producer nations would join Doha talks on implementing a proposed output freeze to stabilise plummeting prices.

The Qatari energy ministry said all 13 OPEC members including Iran had been invited to the talks in Doha with key non-cartel producers including Russia.

"The potential deal between Russia and OPEC to freeze oil production (levels) should also help to reduce the imbalance between demand and supply in the oil market," noted City Index analyst Fawad Razaqzada.

"For that reason, I do not expect (this week's price losses) to be the start of another major downward trend."

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© 2016 AFP

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