You are here

Oil rises back towards US$56, outlook still fragile

[LONDON] Oil rose towards USUS$56 a barrel on Thursday, recovering from part of the previous session's drop, although traders and analysts said the prospect of a further, sustained rally from near six-year lows looked weak.

Crude snapped a four-day winning streak on Wednesday, when the US government said crude inventories increased by 6.3 million barrels, rising for a fourth consecutive week to hit a record high.

While the global market has more than enough crude, a collapse in Libyan production and a raid on an oilfield by gunmen, plus an attack on a tanker off Nigeria renewed concern about threats to supply.

Brent crude rose US$1.69 to US$55.85 a barrel by 1345 GMT, having fallen more than a dollar intra-day earlier and settling 5.5 per cent lower on Wednesday. US crude added US$1.35 to US$49.80.

"There's more and more money coming in on the long and the short side, and I think the result of that is we'll probably see increased volatility," said Olivier Jakob, oil analyst at Petromatrix. "If we start to have more problems in Nigeria, then it starts to reduce the spare capacity that there is and then it's harder to make the case that oil should be at US$30."

Oil began to rise last week from near-six-year lows, in part due to a downturn in US rig activity that could eventually dampen rapid growth in shale oil production, only to tumble on Wednesday.

Other participants said it was too soon to expect a sustained price rise.

"There's no basis for a sustained recovery at the moment," said Carsten Fritsch, analyst at Commerzbank.

Christopher Bellew, a senior broker at Jefferies Bache, also did not expect prolonged gains.

"I think prices will consolidate around these sorts of levels before moving lower. It takes a lot of time for fewer rigs to translate into lower oil production," he said.

A workers' strike in the United States at nine plants, including seven refineries accounting for 10 per cent of the country's refining capacity, added to concerns over crude demand.

The United Steelworkers union (USW) said a new contract offer was made by lead oil company negotiator Royal Dutch Shell Plc on Wednesday, and that it would respond after considering the offer on Thursday.