Expect fair to partly cloudy conditions today with chances of fog and mist formation in some areas
Brent crude hit $50.22 per barrel at one stage on Thursday, its highest level since early November.
The surge followed US data showing that oil inventories had fallen after supply disruptions due to fires in Canada that reduced supplies by about a million barrels per day. Outages in Venezuela, and unrest affecting energy infrastructure in Nigeria have also caused supply disruptions.
US crude oil inventories fell by 4.2 million barrels to 537.1 million barrels in the week to May 20, according to US Department of Energy data.
Talks in recent months between Opec and Russia about freezing oil production are also another factor spurring a price rise. Talks in recent months between Opec and Russia about freezing oil production had already encouraged a price rise.
At 0715 GMT, the European benchmark Brent was up 34 cents at $50.08 a barrel, while US benchmark West Texas Intermediate was not far behind, trading 28 cents higher at $49.84.
Brent has now risen 80 per cent since it hit 13-year lows of around $27 in early 2016 amid concerns of a global oversupply and disruption in the world markets. For oil exporters in the GCC, who faced up to $300 billion annual revenue shortfall in the wake of prices plummeting by 70 per cent over the past months, the dramatic surge came as Qatari energy minister Mohammed bin Saleh Al Sada, who is also head of the Organisation of Petroleum Exporting Countries, argued that a minimum price of $65 a barrel for oil is "badly needed at the moment."
However, analysts have cautioned that price volatility was likely to continue, saying it too early to believe this surge to be the beginning of the critical rebound. "If the market goes up too quickly there will be auto-corrections," they warned.
Goldman Sachs has said that it now expected oil prices to consistently hit $50 a barrel in the second half of 2016 and $60 by the end of 2017.
However, analysts in the "bear" camp reckon there is still plenty of global supply that could potentially come on line, with a number of US producers of shale oil ready to step up production as prices rise. The return of thousands of barrels of crude onto global markets from Iran is also helping keep oil plentiful.
Oil experts said prices are likely to be kept in check by the fact that there remain large volumes of supply ready to return to the market. For one thing, the recent outages among exporters are likely to be temporary.
However, oil experts believe that if oil remains above $50 some producers might be spurred to increase supplies, threatening to cap further price gains. Pioneer Natural Resources, an independent producer, said last month that it would add drilling rigs if the price of WTI in 2017 was above $50 and inventories were declining.
"The return of US oil production on the back of higher oil prices, cost deflation across the sector, and Saudi Arabia's intentions to raise crude production and exports are headwinds to a price rally," said Citi.
Traders are also wary of the rally petering out once refiners have bought the crude they need to feed the coming US driving season. In early 2015, oil prices similarly rallied from January to May before collapsing again.
Oil companies have started preparing for higher prices in a sign of growing confidence. BP said last month it had budgeted for prices of at least between $50 and $55 a barrel in 2017 while US oil producer Pioneer Natural Resources announced plans to add up to 10 new rigs when the oil price gets back up to $50.
According to Citigroup, $50 oil may prompt the activation of many wells in the US while prices at $60 are likely to spur fresh drilling. The recent price rally could release 400,000 barrels a day or more of new U.S. output. The bank's analysts forecast oil prices could reach around $65 a barrel by the end of 2017.
- issacjohn@khaleejtiems.com
Expect fair to partly cloudy conditions today with chances of fog and mist formation in some areas
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