Oil prices jumped yesterday above $50 for the first time this year as a long-lasting global supply glut showed increased signs of easing.
In a boost for countries exporting crude, including the likes of crisis-hit Venezuela, prices are once more on the rise having nosedived from above $100 a barrel two years ago to around $27 in early 2016.
Futures had slumped owing largely to a global supply glut, fed by rising production of oil extracted from North American shale rock that competed in the marketplace with crude from key producers including the Opec organisation, Russia and Norway.
But in recent weeks, oil prices have rebounded on lower output caused by wildfires in Canada, as well as unrest in Nigeria, Africa’s biggest oil producer.
Outages in Venezuela have also lent support.
Yesterday, benchmark oil contract Brent North Sea crude struck $50.51 a barrel - the first time above $50 and highest level since early November.
US contract West Texas Intermediate (WTI) hit $50.21 a barrel - a peak since the start of October.
“Oil has broken through the $50 per barrel level...supported by government data that illustrated steeper than expected drawdown in US crude oil stockpiles last week,” said analyst Dorian Lucas at energy consultancy Inenco.
Crude had been edging close to $50 for the last fortnight but a strong dollar caused by rising expectations of a US rate hike next month curtailed gains.
A firmer greenback makes the dollar-priced commodity more expensive, hampering demand.
The tip finally above the psychological level came thanks to official data on Wednesday that showed US commercial crude inventories fell by 4.2mn barrels last week, indicating strong demand in the world’s top oil consumer.
The Bank of Canada meanwhile said that the destruction by fire of homes and businesses and the halt to oil production would shave about 1.25 percentage points off the country’s gross domestic product in the second quarter.
“News about the US inventory, coupled with Canada’s announcement, gave prices the boost it needed to push past the $50 mark,” CMC Markets trader Alex Wijaya said.
After reaching multi-month highs, prices retreated as investors banked their profits.
Around 1600 GMT, Brent crude for delivery in July stood at $49.85, up 11 cents from yesterday’s close.
WTI for July won 10 cents to $49.66 a barrel.
Shailaja Nair at global energy information provider Platts said that it remained to be seen whether oil producers would find respite after prices breached the $50 mark.
“There’s a little bit of demand but not like suddenly we’ve found a huge pocket of demand, we are not seeing that.
Whether it will stay above $50 or not, that is going to tell us whether the producers can breathe a sigh of relief,” she said.