Oil prices recede after topping US$50 a barrel

The price of oil pushed toward US$50 a barrel on Tuesday as wildfires spread in Canada's oil sands region forcing thousands more to evacuate. (AFP/Haidar Mohammed Ali)

NEW YORK: Oil prices topped US$50 a barrel for the first time this year on Thursday (May 26) as the global supply glut shows increased signs of easing.

But the markets quickly gave back early gains and crude finished below the US$50 mark for the day.

US benchmark West Texas Intermediate for July delivery ended down eight cents from Wednesday at US$49.48 a barrel on the New York Mercantile Exchange, after exceeding US$50 early in the session.

In London, Brent North Sea oil for delivery in July also briefly pushed above the US$50 threshold, but closed down 15 cents to US$49.59 a barrel.

The breaching of US$50 follows oil outages in Canada, Nigeria and elsewhere over the last month, and sharp US production cutbacks, that have tightened supply.

But it marked an only partial recovery in the market after prices collapsed from over US$100 a barrel in mid-2014.

They approached US$25 a barrel in February due to policy decisions by Saudi Arabia and other power brokers in OPEC against cutting back production as they sought to preserve market share at any price. They have maintained the glut in order to force out more expensive producers, particularly in North America.

Some analysts are skeptical oil prices will continue to climb. Despite last week's decline in petroleum stocks, US oil inventories remain near historic highs.

Other bearish factors include increased production in Iran and an uncertain demand outlook in China and other key markets.

"I think people feel like US$50 dollars is a kind of sell-point where the people who've made their profits are going to get out of the market," said Mike Lynch of Strategic Energy & Economic Research. "So it may act as a temporary ceiling."

Analysts also caution that the move above US$50 a barrel could trigger some shale producers in the US to resume production after halting work due to low prices.

They also see that OPEC might not move to cap or cut back production in its June summit in Vienna as some have hoped.

"From a fundamental point of view, we see the further gains as an indication that oil is becoming more expensive, but as also reducing any incentive on OPEC to trim output at its upcoming Jun 2 summit in Vienna," said Citi Futures analyst Tim Evans. "On the contrary, it encourages OPEC producers to pump away."