Oil prices gain as markets weigh pressures on supply

London (Nov 17)  Oil prices rose in volatile trade on Tuesday, as markets weighed the continuing oversupply of crude against the increased geopolitical uncertainty following the Paris terror attacks.

Still, despite the French airstrikes against Islamic State’s stronghold in Syria following Friday’s attacks, analysts said the increased risks are unlikely to disrupt production.

“The fact that France has stepped up its airstrikes obviously increases the geopolitical risks, yet this is unlikely to disrupt oil production in neighboring countries,” analysts at Commerzbank said in a note to clients. “No significant effects on oil supply are expected for the time being, in other words.”

Brent crude LCOF6, -1.03%  , the global oil benchmark, rose 1% to $45.04 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures CLZ5, -1.27%  were trading up 0.5% at $41.92 a barrel.

Both benchmarks have dipped into negative territory earlier in the session as the strong dollar pressured prices. The Wall Street Journal Dollar Index BUXX, +0.05%  , which tracks the dollar against a basket of other currencies, rose 0.15% on Tuesday. As oil is priced in dollars, it becomes more expensive for holders of other currencies as the greenback appreciates.

“Weighing on oil prices is the strengthening in dollar as investors are increasingly optimistic that the Fed will raise interest rates at the December meeting,” said Michael Poulsen, oil analyst at Global Risk Management.

Oil prices have been depressed for more than a year as ample supplies around the globe were met by tepid demand for crude. While some producers like the U.S. have cut back on their output in recent months, others like Saudi Arabia and Russia have continued to pump crude at a high pace in a bid to defend their share of the market.

A rise in U.S. oil stockpiles seen in recent weeks is unlikely to change this week due to the continuing refinery maintenance season. The American Petroleum Institute, an industry group, will report its stockpiles data later in the day, followed by the official report by the U.S. Energy Information Administration on Wednesday.

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“Market fundamentals are undoubtedly bearish. WTI is likely to break below $40 and even Brent could test $40,” analysts at Energy Aspects said in a note to clients.

Still, Energy Aspects said that the market could recover when refiners return from their maintenance season. The market could “hobble through the next few months before the supply falls truly start making an impact on balances,” the London-based consultancy said.

Nymex reformulated gasoline blendstock RBZ5, -0.53%  — the benchmark gasoline contract — rose 0.5% to $1.24 a gallon. ICE gas oil changed hands at $428.75 a metric ton, up $13.75 from the previous settlement.

Source: MarketWatch