Oil posts best quarter since mid-2015 but glut still worries

[NEW YORK] Oil prices jumped more than 10 per cent in March in the best quarter since mid-2015 although some analysts said the rally could fade soon as an output freeze plan by major crude exporters fails to alleviate worries of a glut.

A weak dollar and data showing a drawdown in crude stocks at the US futures delivery hub helped oil settle steady to firmer in Thursday's session.

But traders remained worried that a tentative agreement among the world's largest producers to keep oil output at January's levels will barely make a dent on global supplies.

Analysts said crude futures also appear to have overextended gains with a 50 per cent rally since the deal was proposed mid-February, amid little improvement in fundamentals.

"Oversupply still persists due to resilient US production, even if declining moderately; high Opec output, led by Saudi Arabia and Iraq; and the gradual return of Iran starting Q1 2016," said Mike Wittner, global head of oil research at Societe Generale.

Brent crude for May delivery, which expired as the front-month contract, settled up 34 cents, or 0.8 per cent, at US$39.60 a barrel. June Brent closed 0.7 per cent higher at US$39.75.

The benchmark's front-month soared 10 per cent higher in March - its best month since April 2015 - and jumped 6 per cent in the first quarter - its best quarter since the second quarter in 2015.

US crude futures settled at US$38.34, up 2 cents on the day, rising 14 per cent in March and 4 per cent in the quarter - also its biggest quarterly gain since June 2015.

In a Reuters poll, oil analysts raised their average price forecasts for 2016 for the first time in 10 months - Brent averaging US$40.90 and US crude US$39.70 in 2016 - but cautioned the rally could fade near term.

On Thursday, the dollar hit a mid-October low, making greenback-denominated oil more attractive to holders of the euro and other currencies.

Data from market intelligence firm Genscape showed a 807,496-barrel drawdown in stocks at the Cushing, Oklahoma delivery hub for US crude futures in the week to March 29, traders said.

Inventories at Cushing have receded from record highs for two consecutive weeks, with US government data on Wednesday showing a 272,000-barrel drawdown in the week ending March 25.

Total US crude stocks, however, rose 2.3 million barrels last week to 534.8 million barrels, a record high for a seventh straight week.

Opec crude output rose in March to 32.47 million barrels per day from 32.37 million bpd in February, a Reuters survey said.

Analysts also expect an April 17 meeting of major oil producers in Doha to discuss the output freeze to fall short of expectations. "There is a clear risk of disappointment and for a temporary setback in prices ahead or immediately after the Doha meeting," Carsten Fritsch, commodities analyst at Commerzbank, told the Reuters Global Oil Forum.



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