Crude futures rose on a raft of supportive indicators on Thursday, although some traders warned that physical supply and demand fundamentals did not warrant a strong price recovery at this stage.
International Brent futures LCOc1 jumped above $40 per barrel in early trading and stood at $40.10 at 0425 GMT, up 26 cents from the last close and about 8 percent above lows reached earlier this week.
Front month U.S. West Texas Intermediate (WTI) crude futures CLc1 were trading at $38.09 per barrel, up 34 cents from their last close and also 8 percent above their April lows.
U.S. crude prices were supported by an unexpected fall in crude inventories, albeit from a record high, last week as refineries continued to hike output and imports fell.
“Oil prices spiked after the EIA data release,” ANZ bank said in a morning note on Thursday.
U.S. crude inventories USOILC=ECI fell 4.9 million barrels in the week to April 1, compared with analysts’ expectations for an increase of 3.2 million barrels, according to data from the Energy Information Administration on Wednesday.
In Europe, North Sea oil field maintenance expected next month lent support to Brent futures, which are priced off North Sea supplies.
The over 5 percent slide in the dollar .DXY since the beginning of the year is also supporting oil, traders said, as it makes imports of dollar-denominated fuels cheaper for countries using other currencies, boosting demand.
Manufacturing, another pillar of demand, also seems to be recovering from recent weakness.
“Global manufacturing PMIs (Purchasing Managers’ Index) saw their strongest MoM (month-on-month) recovery in two and half years in March, according to our calculations,” Macquarie bank said.
Yet some traders and analysts warned that the rise in futures prices might be premature and not supported by physical market fundamentals.
A planned meeting of major oil producers on April 17 to freeze output around current levels, which in most cases remains at or near record highs, would do little to reduce an overhang in production with at least 1 million barrels of crude pumped every day in excess of demand.
Goldman Sachs (GS.N) said that it was “less willing to believe in a sustained OPEC production freeze or cut” and instead expected OPEC’s production to rise by 600,000 barrels per day (bpd) this year and by 500,000 bpd in 2017.
As a result of this and also production data from the United States, Goldman said it was “somewhere between in line and
modestly bearish for prices … (and that) $35 per barrel WTI is not too high and not too low but just right.”
French bank BNP Paribas issued a recommendation “to be long the put spread positions” in the oil options market in expectation that futures prices will fall further.