Oil falls toward $61, rally’s sustainability in question
Oil prices have risen more than 35 percent since hitting an almost six-year low of $45.19 in January
Oil fell towards $61 a barrel on Wednesday, failing to build on gains of more than 1 percent in the previous session as analysts said a recent rally was overblown.
“The lack of follow-through higher yesterday is a worry and there’s plenty of reason to be neutral here and observe carefully,” PVM Oil Associates director and technical analyst Robin Bieber said.
Oil prices have risen more than 35 percent since hitting an almost six-year low of $45.19 in January, with the ascent fuelled by industry spending cutbacks and falling U.S. rig counts.
Benchmark Brent crude futures were down $1 at $61.53 by 14:40 G.M.T., having fallen to a low of $60.81 earlier in the session. U.S. crude traded at $52.65 a barrel, down 88 cents.
“The contracts will look very fragile and accident-prone if one or two more contracts fail to hold key support,” Bieber said.
Volumes were significantly reduced in early trading as several Asian countries started the Lunar New Year holidays.
BNP Paribas analysts said the recent surge in prices was premature given record-high U.S. crude stocks.
“U.S. refinery outages, through seasonal maintenance and industrial action, will weaken U.S. crude demand, exacerbating the crude stock excess in the near term,” oil strategists Gareth
Lewis-Davies and Harry Tchilinguirian said in a note to traders.
U.S. commercial crude stockpiles are already at their highest since records began and are expected to have risen again last week by 3.1 million barrels, a preliminary Reuters survey showed on Tuesday.
Stocks data from industry group the American Petroleum Institute is due later on Wednesday.
Instability in the Middle East helped to support the market but analysts said this was dampened by the expected increase in stocks.
“Brent prices have benefited a bit from Libyan and Iraqi pessimism, but if stocks continue to amass, particularly Libyan problems will weigh light,” Samuel Ciszuk, senior adviser on security of supply to the Swedish Energy Agency, told the Reuters Global Forum.
“People are getting used to Libyan exports being treated as a bonus,” he added.
Libya’s oil exports have collapsed to less than 200,000 barrels per day (bpd), from 1.6 million bpd before the 2011 civil war, hit by violence that has shut all the country's major ports.
On Tuesday Egyptian President Abdel Fattah el-Sisi called for a United Nations resolution mandating an international coalition to intervene in Libya against Islamic State militants.