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Oil Prices Rise on Stock Market Strength
| Wall Street Journal | - |
Oil
prices rebounded on Thursday, boosted by rising equities and a falling
dollar and shrugging off widespread bearish sentiment from many oil
specialists.
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Oil Prices Rise on Stock Market Strength
Falling dollar also boosting many commodities
ENLARGE
A Pemex refinery in Salina Cruz, Mexico.
Photo:
Bloomberg News
U.S. crude for August delivery settled up 93 cents, or 2.1%, to $45.68 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained $1.11, or 2.4%, to $47.37 a barrel on ICE Futures Europe. The rebound comes a day after oil posted the latest in a series of big daily losses and settled at a two-month low.
Oil’s fate has been closely tied to stocks and the dollar since June’s vote by the U.K. to leave the European Union. The vote fueled uncertainty about global growth prospects, making near-term trends of supply and demand less important. Traders are looking to the dollar and the stock markets for signs about whether investors are still fleeing to haven assets or willing to take on more volatile ones such as commodities, analysts and brokers said.
The Wall Street Journal Dollar Index, which tracks the greenback against a basket of other currencies, recently lost 0.3%. Oil and other commodities that trade in dollars often move in the opposite direction of the dollar. A falling dollar often drives commodity prices higher because they become cheaper for traders using other currencies. The S&P GSCI index, which tracks the prices of 24 commodities, gained 0.7%.
“Strong equities means a strong economy,” said Scott Shelton, broker at ICAP PLC. “A weaker dollar and stronger other currencies, with a stronger equity market, will give people some comfort that demand is going to stick around.”
Sentiment among oil traders and analysts has widely shifted in a bearish direction in recent weeks because the supply surplus is still expanding, making it clear a return to balance between supply and demand is taking longer than expected, said Jim Ritterbusch, president of energy-advisory firm Ritterbusch & Associates. But those ideas take a temporary back seat when it is clear that across markets investors are jumping back into riskier assets, he added.
“The road south will continue to be characterized by fits and starts with the complex working lower in erratic fashion,” Mr. Ritterbusch added in a note.
Signs are pointing to slower demand at a time when global inventories of crude oil and refined products held by developed nations are at a record high, the International Energy Agency said in its report released on Wednesday. U.S. four-week average product demand growth was less robust than previously expected, said Michael Wittner, chief oil analyst at Société Générale SA . And data from China show foreign crude imports dropped to a five-month low in June.
“The rally that pushed us to $50 has run out of steam right now,” said Gene McGillian, research manager at Tradition Energy.
But there are signs of positive demand, according to analysts at Royal Bank of Canada. They expect global economic growth of about 3.2% through 2018, with industrialized nations being the mainstays for growing oil demand. They raised their demand expectations to 1.4 million barrels a day this year from 1.1 million, and next year to 1.3 million barrels a day from 1 million.
That, combined with a series of supply outages and falling U.S. output this year, led the bank’s analysts to raise their price forecasts. They now have U.S. oil at $45 a barrel this year—up from $41—and at $59 a barrel in 2017—up from $57. They raised Brent oil to $47 a barrel this year—up from $43—and for 2017 up to $62 a barrel from $60.
“The global oil market appears to have re-established balance in the second quarter of 2016 amid outages in Canada’s oil sands and Nigeria, and firmer demand conditions—and has begun the heavy lifting exercise of chipping away at the inventory overhang,” they said in a note issued overnight.
Gasoline futures gained 3.56 cents, or 2.6%, to $1.414 a gallon. Diesel futures gained 2.55 cents, or 1.9%, to $1.4064 a gallon.
—Sarah McFarlane, Jenny W. Hsu and Akane Otani contributed to this article.
Write to Timothy Puko at tim.puko@wsj.com 
