Oil hit an 18-month high on Thursday, breaking up above previous trading ranges and drawing in fresh inflows from investors at the start of the new quarter. The move higher came despite a stronger dollar, which often dampens enthusiasm for commodities, and after news of yet another build in U.S. crude oil inventories. U.S. crude for May delivery rose 75 cents to US$84.51 a barrel by 1235 GMT, after hitting an intraday high of US$84.70 and settling at US$83.76 a barrel on Wednesday, the highest close since October 2008.
London ICE Brent climbed US$1.05 to a high of US$83.75 before slipping back to trade up around 85 cents at US$83.55. Crude oil futures will not trade on Friday in either New York or London because of the Easter holiday. "Upward momentum is very strong," said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. "The market is rising even with a stronger dollar and even after what were bearish figures on U.S. inventory levels." "Money is flowing into commodities at the beginning of the new quarter from all sorts of investors, including funds." Oil prices dipped briefly on Wednesday after government data showed U.S. crude inventories rose by 2.9 million barrels to 354.2 million barrels last week, their ninth straight gain. Gasoline stockpiles logged a modest but unexpected gain. But the market soon returned to strength.
"We suspect that with the dollar no longer rallying, (at least for now), commodity markets have been able to build a head of steam. In addition, simmering geopolitical tensions could also be at work," said Edward Meir at brokers MF Global. He said talk of a possible new round of sanctions against Iran, maybe within weeks rather than months, could be underpinning the market. But he added a note of caution: "With respect to short-term pricing trends, we suspect there might be a temporary pause in the rally," Mr. Meir said. "Although the market will likely take this level out given the way it has been trading of late, we still would caution against joining this latest advance, tempting as it might be."
U.S. front-month crude oil rose 5.5% in the first quarter, its fifth consecutive gain. But although it has more than doubled from a December 2008 low, it is still well short of a record high near US$150 a barrel hit earlier that year. After wild swings in the past two years, oil has stabilised recently near the range favoured by members of the Organization of the Petroleum Exporting Countries between US$70 and US$80. Last quarter, oil traded from a peak of US$83.95 in January to as low as US$69.50 a barrel in February, a range of less than US$15.
Implied volatility for U.S. crude is now around its lowest level since before prices surged to a record US$147.27 a barrel on July 11, 2008, before plummeting to US$32.40 five months later. Technical chart analysts said oil's break up on Thursday through resistance levels above previous trading ranges suggested the market could move quite a lot higher. "With the break of the previous highs, positive momentum is starting to be created in WTI and the next target will be $85.00 per barrel," said Olivier Jakob, at Petromatrix in Zug. "Above US$85.70 per barrel there will be no solid resistance until US$90."
With commodities markets still closely watching economic developments, investors awaited Friday's non-farm U.S. payrolls for March, forecast to have increased in a Reuters survey. A rise would mark only the second time payrolls have risen since the recession started in December 2007, although this might be partly on the back of hiring for the 2010 census.
