Oil prices surge amid weak U.S. dollar

WTI and Brent crude surged through Wednesday and extended gains in Thursday as broadly weaker dollar and signs of an increase in demand pushed prices up. Both contracts are poised to set a biggest weekly gain since the week ending April 26 with the U.S. oil jumping 3% and the European benchmark 3.3%.

WTI crude for July delivery traded at $94.94 a barrel at 6:33 GMT, up 0.18% on the day. Brent oil marked a 0.14% increase for the day and traded at $103.75 at 6:36 GMT.

Oil prices were supported through the week by weakening of the dollar and signs of an increased demand, based on the Energy Information Administrations Crude Oil Inventories report on Wednesday.

The greenback was pressured down by its counterparts and reached a three-month low in the previous session. The dollar lost positions against the euro as mixed, but overall positive news came out from the single-currency bloc yesterday. German factory orders showed worse than anticipated readings on both annual and monthly basis. However, Bank of England decided not to tamper with its monetary stimulus program and leave it at 375 billion GBP. England’s central bank also decided to leave its base interest rate intact at 0.50%. Same decision was taken by the European Central Bank.

Also, in the U.S. Initial Jobless Claims mismatched expectations by a little and fell to 346 000 for the week ending June 2, down from 357 000 the preceding week, but still 1 000 more than the 345 000 decrease expectation. This further pushed the dollar down, increasing prices of dollar-priced commodities. All eyes are pointed at Fridays labour data in the worlds biggest economy. Change in Non-Farm Payrolls, Average Hourly Earnings and the Unemployment Rate will shed some light on the health of the U.S. economy, thus dampening or sharpening expectations about Fed’s monetary stimulus program. Analysts forecasts suggest no change in the figures and anything different from that will have a strong impact on all markets.

Investors’ market moves have been largely tracking news on the Quantitave Easing as it’s a key factor for dollar’s strength. All dollar-priced commodities are determined by the greenback in an inverse relation. That is why key U.S. economy indicators, when mismatching forecasts, tend to cause wide fluctuations on the commodities market. Feds policy-setting committee is due to meet on June 18-19. The somewhat controversial U.S. economic data shows the U.S. economy has hit a soft patch in the early Q2, which makes a premature monetary stimulus scale back highly unlikely.

Tetsu Emori, a commodity fund manager with Astmax Investments in Tokyo said for Reuters: “Investors should look at dollar trades more than supply-demand factors for oil. In the long-term I agree that the dollar will strengthen as the Fed rolls back stimulus, but for now the dollar seems overbought and we are seeing some unwinding of positions.”

Oil prices found strong support by a surprising plunge of the Crude Oil Inventories indicator in the U.S. According to the Energy Information Administration’s report, U.S. crude reserves dropped surprisingly by 6.267 million barrels in the week ending June 2. This is a significant decrease, compared to the preceding week’s 3 million barrels gain. Final value mismatched forecasts of an 800 000 barrel decline, which caused WTI crude prices to surge above $94 per barrel and Brent oil surpassed $104.

U.S. gasoline stockpiles also fell by a seasonally adjusted annual rate of 366 000 barrels, compared to a decrease of 1.541 million barrels during the week ending May 26. Final estimates missed forecasts of a 1 million barrels increase in gasoline reserves.

David Lennox, an analyst at Fat Prophets in Sydney said for Bloomberg: “What we’re seeing is probably more of a seasonal thing in that we’re in the U.S. driving season. We’re not expecting to see a significant improvement in demand coming out of Europe for the remainder of this year at least. The economic condition that it has got itself into is taking time to repair.” He predicted WTI will trade between $70 and $95 a barrel for the rest of the year.