Oil pares gains from six-week high, hovers near $80

Oil is unlikely to sustain $80 levels, says Commerzbank analyst. (AFP)

Oil held just under $80 a barrel yesterday, paring much of an earlier gain to a six-week high, with the dollar down as investors assessed the prospect of an earlier US interest rate rise than previously expected.

An oil refinery strike in France entering its sixth day, a report of rising crude oil processing in world No2 oil consumer China in January and tensions over Iran's nuclear programme also supported prices.

US crude for March delivery rose 15 cents to $79.96 a barrel by 1152GMT.

It earlier reached $80.51 – the highest for a nearby contract since January 13. Brent crude for April rose 17 cents to $78.36.

"Sceptical as we are of the advance, we cannot fight the current run higher as prices are now within striking distance of their recent highs and likely on track to test them," said Edward Meir, analyst at MF Global.

The dollar came under pressure from easing fears over potential interest rate rises in the United States, and as talk of a bailout for debt-ridden Greece underpinned the euro.

A weaker dollar makes crude and other dollar-denominated commodities cheaper for holders of other currencies and tends to support oil prices. Gold climbed to a one-month high.

Some investors have taken the view that the rally to $80 was overdone, analysts said. The market's peak so far in 2010 is $83.95 reached on January 11.

"Oil looked toppish at $80, that's the upper end of the trading range," said Carsten Fritsch, analyst at Commerzbank.

"It's unlikely to see a level of $80 being sustained given still-weak fundamentals. Physical demand is still lacklustre, outside China at least," said Fritsch

Workers at Total's French refineries continued strike action, raising concern about fuel supplies and supporting the price of refined products such as gasoil.

The 339,000-barrel-per-day Gonfreville refinery will halt production fully ltoday due to the strike, the CGT union said. Four other Total refineries are in the process of halting production.

Tension about Iran's nuclear programme also provided support. Iran has earmarked potential sites for new nuclear enrichment plants and construction of two of them could begin this year, a nuclear energy official said yesterday. Oil rose 7.7 per cent last week, the largest single-week percentage gain since October.

Money managers boosted their net long crude futures position on the New York Mercantile Exchange in the week through February 16.

More data emerged from China suggesting strong demand. The China Petroleum and Chemical Industry Association (CPCIA) said China processed 30.14 million tonnes of crude in January, up 29 per cent from a year earlier.

Some think the rally has further to run. Goldman Sachs said that benchmark oil prices will rise to $85-$95 a barrel this year as global economic growth accelerates.

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