Oil rose 3 percent on Tuesday as short-covering and technical support halted its slide to 11-year lows, but traders said the market remained fundamentally weak from oversupply and could be hit by a dollar rally ahead of an expected US interest rate hike. Brent and US crude's West Texas Intermediate futures rose more than $1 a barrel, up for the second straight day after oil bears failed to push prices below a seven-year trough.
"People are buying on the dips," said Jeffrey Grossman, crude dealer at New York's BRG Brokerage, who expects Brent to return closer to the $40-a-barrel level it fell under last week. Brent was up $1.05, or 2.8 percent, at $38.97 a barrel by 1:12 pm EST (1812 GMT) after hitting a session high of $39.41. On Monday, it came within 14 cents of snapping its December 2008 bottom of $36.20, unleashing a surge of buying support at those low levels.
WTI was up $1.36 at $37.67. It fell to $34.53 on Monday, the lowest since its financial crisis bottom of $32.40. Oil's rebound was restrained somewhat by a firm dollar ahead of expectations that the Federal Reserve on Wednesday will announce the first rate hike in almost a decade. A stronger greenback makes dollar-denominated oil less affordable to euro holders.
Jim Ritterbusch, founder of Chicago-based oil consultancy Ritterbusch & Associates, said in a research note that investors would focus on the Fed announcement during the next two sessions. "We are seeing nothing unusual about this week's price bounce given the fact that the entire complex had become much oversold based on virtually all of our technical indicators," he said.
Analyst Chris Jarvis of Caprock Risk Management in Frederick, Maryland, concurred. "Everyone was looking at 11-year lows, but I think people got a sense of 'bids' when they tried probing there," Jarvis said. "But I'd be surprised if they don't come back and take it down." Credit ratings agency Moody's cut its 2016 Brent estimate to $43 from $53, citing oversupply. Danske Bank said crude could hit $25 before output declines push prices back up.
Notwithstanding the global glut, analysts polled by Reuters estimate US crude stockpiles fell by 1.4 million barrels last week. Industry group American Petroleum Institute will issue its own stockpile report after market settlement, at 4:30 pm EST (2130 GMT) and ahead of US government data on Wednesday.
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