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Oil prices remained near 2016 highs in early trading on Thursday, buoyed by a fall in U.S. crude inventories, a weaker dollar and strong demand amid the ongoing supply outages in Nigeria.
Data from the U.S. Energy Information Administration (EIA) reported that U.S. crude stocks last week fell by 3.2 million barrels versus analysts’ expectations for a 2.7 million-barrel drawdown, marking their third consecutive weekly fall.
Oil has also benefited from a surge in general investment interest in commodities, as concerns about the possibility of the U.S. Federal Reserve increasing interest rates later this month, abated following weak jobs data that reduced dollar strength. A weaker greenback, down around 2.4 percent this month against a basket of other currencies, makes dollar-traded fuel imports for countries using other currencies cheaper.
Strong import data in May from China, the world’s second-largest oil consumer, also added a layer to the current bullish sentiment.
Meanwhile, turmoil in Nigeria has shown almost no sign of stabilization. Multiple attacks on key pipelines and facilities have reduced Nigeria’s daily oil output to around 1 million barrels.
Crude oil prices are now hovering near a 10-month high, but whether the rally will sustain for much longer remains doubtful, as higher prices and profitability are likely to encourage a stream of production restarts.
The EIA said U.S. output increased by 10,000 barrels last week compared with the week before. The number of active rigs also increased by 9 to 325, raising questions about whether the rebounding market is already leading U.S. producers to pump more. Traders also warned of an ongoing build in refined product stocks in the United States and Asia.
Investors will still be awaiting any signals of a Federal Reserve rate hike either in July or September, which could also act as a dampener to the current optimism.
With fundamentals weighing both for and against higher prices, many traders and analysts say that a price tag of $50-60 for a barrel of crude is a fair value for oil under current conditions.
Fig. WTI D1 Technical Chart
On the daily chart, U.S. West Texas Intermediate (WTI) crude is trading higher at $51.84 a barrel, extending gains above the $50 per barrel mark. Stochastics are in the overbought zone, and the %D line is catching up with %K line. RSI remains strong at 73.32 after hitting the overbought point. The price is likely continue rising to the resistance at 53.37.
Buy Digital Call Option from 49.59 to 53.57 valid until 20:00 June 10, 2016