Oil Prices Settle Up on Technical Rally - TheStreet


NEW YORK (TheStreet) -- Crude oil prices ended the trading session with a technical rebound, getting a bit of a boost from the latest Department of Energy inventory report.

Light sweet crude oil for July delivery popped $1.73 to settle at $101.32 a barrel and the July Brent crude contract spiked by $2.40 at $114.93.

"

It seems to be a technical rally, with little follow-through," Tradition Energy Senior Director of Market Research Addison Armstrong said in an email.

"The trigger was breaking yesterday's high of $100.09;

the target is $101.42, which was the high last week," Armstrong said. "DOE stats were somewhat supportive, but total U.S. crude inventories remain above the five-year high."

The Department of Energy on Wednesday said U.S. commercial crude inventories increased by 600,000 barrels week-over-week in the week ended May 20 vs. an expected 1.3 million barrel fall in stocks. Total motor gasoline inventories increased by 3.8 million barrels last week vs. a projected 300,000 barrel increase.

U.S. crude oil inventories were above the upper limit of the average range for this time of year and gasoline inventories were in the lower limit of the average range, the DOE said. Distillate fuel inventories decreased by 2 million barrels last week and were in the upper limit of the average range for this time of year, according to the report. Analysts were expecting an increase of 100,000 barrels.

Earlier, light sweet crude futures were trading in the red and Brent crude futures were trading sideways as the markets weighed a lower-than-expected drop in American Petroleum Institute-reported stocks and the potential impact of a stronger dollar following the conclusion of the government's second round of quantitative easing.

The Federal Reserve's QE2 program is slated to conclude at the end of June and make room for

the strengthening of the dollar.

Some worry that the return of dollar strength will lead to a weakening of oil, which is priced in dollars.

"It will be interesting to see how oil reacts to the end of QE2. The obvious reaction is one of a flight from risky assets -- dollar strength, and hence weakness in crude," says Matt Smith, commodity analyst at Summit Energy Services.

But Smith also points out that a confirmation of the end of QE2 from Fed chairman Ben Bernanke wouldn't be surprising to the markets, and therefore would be unlikely to have much of an impact on the oil price -- barring an initial kneejerk sell-off.

"After all, an end to it would signal that the government thinks the economy is strong enough to stand on its own two feet ... whether it can or not is yet to be seen," says Smith.

The American Petroleum Institute on late Tuesday reported that U.S. crude oil stocks fell by a lower-than-expected 860,000 barrels last week. Gasoline inventory rose sharply at 2.4 million barrels, the API reported.

Meanwhile, Japan, the third-largest oil consumer, reported that its crude imports fell 14% in April from a year ago due to a disruption in demand from damaged refineries.

Chinese demand remains a "driving force" behind Asian demand, says JBC Energy analysts. "A key trend is that China is increasingly filling its shopping basket with Middle Eastern crude at the expense of Brent-related Asian and West African barrels." Oil demand from China, the second-largest oil consumer, reached 38.36 million metric ton or an average of 9.37 million barrels a day in April, marking an 8.3% increase from the same the last year, according to Platts.

In Europe, Icelandic volcanic ash struck once again, disrupting flights out of Germany and the United Kingdom. But given the smaller scale disruption of the ash clouds, "the psychological effect of the ash cloud should be greater this time than the actual effects on oil demand," Commerzbank analysts had noted.

In April of last year, the volcanic ash in Iceland led to the cancellation of 70% of flights over several days in parts of Europe. This resulted in a 20% fall in jet-fuel demand and a 4% fall in oil prices, according to Commerzbank.

Shares of oil producers and oil services companies spiked after trading in negative territory Monday.

Key Energy Services

(KEG) - Get Report

rose 7.7% to $16.71,

Complete Production Services

( CPX) added 5.7% to $33.12 and

Halliburton

(HAL) - Get Report

advanced 5.2% to $49.99.

Royal Dutch Shell

(RDS.A)

rose 0.8% to $69.20,

BP

(BP) - Get Report

tacked on 0.9% to $44.76,

Statoil

(STO)

ticked up 0.7% to $24.62 and

Suncor Energy

(SU) - Get Report

spiked 2.1% to $41.40.

-- Written by Andrea Tse in New York.

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