Oil prices rally on IEA outlook

[LONDON] Oil prices rebounded Friday after the International Energy Agency said that the market may have finally "bottomed out" and was now staging a remarkable recovery.

However the Paris-based IEA cautioned that the recent sharp gains did not mean that the worst was over.

Around 1200 GMT, US benchmark West Texas Intermediate (WTI) for delivery in April added 90 cents to trade at $38.74 a barrel.

Brent North Sea crude for May delivery rose 73 cents to $40.78 a barrel compared with Thursday's close.

"A rebound in the oil price after the IEA called for a possible bottom has helped broader stock market sentiment," said CMC Markets analyst Jasper Lawler.

"The IEA did caveat its call for a possible bottom saying that the worst may still not necessarily over.

"The agency said oil demand remained constant and suggested falling high-cost supply and supply outages in Iraq have supported higher prices." Oil had slumped from above $100 in mid-2014 to near 13-year lows in January earlier this year, before staging a modest recovery to current levels.

However, there is a long way to go before supply and demand find a real balance, probably in 2017, the IEA said Friday.

"International crude oil prices have recovered remarkably in recent weeks," the IEA noted in its monthly market report.

"From a nadir of $28.50 per barrel in mid-January, Brent crude is now trading around $40 per barrel.

"This should not, however, be taken as a definitive sign that the worst is necessarily over. Even so, there are signs that prices might have bottomed out." Among factors for higher prices are talks among producers launched by Saudi Arabia, Venezuela, Qatar and Russia to freeze production which the IEA said amounts to "a first stab at co-ordinated action that is intended to stabilise prices" with the presumed aim of pushing oil up to $50 a barrel.

The outcome of negotiations is, however, uncertain and a big supply overhang in the oil market means it would have little impact in the months ahead.

Crude futures had fallen sharply on Thursday as doubts grew about whether key producers led by Russia and Saudi Arabia would meet this month to discuss crude output limits.

Many analysts tied the fall to reports that a meeting of top producers to address the supply glut was less likely to take place.

Questions over the proposed March 20 meeting emerged after Iran declined to agree to any output cap as it ramps up production following the lifting of nuclear-linked sanctions in January.

And even if a meeting does takes place, analysts are not optimistic an agreement would be reached.

The idea of freezing output surfaced in discussions led by OPEC kingpin Saudi Arabia and Russia in February after an increase in global production January added to a supply glut that sent prices plunging by 70 percent from mid-2014 peaks.

The oil market had meanwhile surged on Wednesday on the back of a US Department of Energy report showing robust demand for gasoline in the world's top oil consumer.

In reaction, WTI had risen to its highest level in more than three months and Brent breached the $41 mark.

Gains were capped by data showing a plunge in Chinese exports in February, stoking fresh fears of a sharp slowdown in the powerhouse economy which is a key engine for global growth.

AFP