Oil prices hit $50 a barrel on Thursday for the first time in seven months, then bounced below that level and settled lower on the day as investors worried robust price gains could encourage more output and add to the global glut. Wildfires in Canada''s oil sands, unrest in the Nigerian and Libyan energy sectors, and a near economic meltdown in Opec member Venezuela have knocked out nearly 4 million barrels per day in immediate production, sparking a buying frenzy in crude futures.
Brent and US crude''s West Texas Intermediate (WTI) futures have risen nearly 90 percent from 12-year lows hit this winter. They have recouped about half of what they lost since mid-2014 when both traded at above $100 a barrel. A climb above $50 per barrel could spur producers, particularly US shale drillers, to revive scrapped operations, which could bloat supplies and trigger a new selloff, analysts said.
"We are viewing current risk/reward ratios as unfavourable toward new longs at current levels," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates, who cites a potential drop of Brent to $47.50. Brent surged as high as $50.51, its highest since early November, then retreated and settled down 15 cents at $49.74 a barrel.
WTI fell 8 cents to settle at $49.48, after reaching $50.21, its highest since early October. US crude for the balance of 2016 remained above $50 while the calendar strip for 2017 was above $51. "I am maintaining my oil view at neutral with a short term bias to the upside," said Dominick Chirichella, senior partner at the Energy Management Institute in New York. "The global surplus still exists and there is still a possibility that oil prices could retrace further."
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