Brent crude futures rose on Tuesday, rebounding from the previous day’s sharp fall, as the prospect of strong oil demand trimming inventories overrode concerns about Europe’s debt crisis.
Brent crude for July was up 67c at $110,77 a barrel by 0458GMT. US crude for July gained 67c to $98,37 a barrel. Both benchmarks had fallen by over $2 on Monday to end below their 100-day moving averages.
Sovereign debt problems in the eurozone, coupled with data pointing to a slowing Chinese economy, had pushed investors to sell riskier assets like oil and the euro in favour of gold and the dollar.
Spot gold hit an intraday high at $1 517,74 an ounce, its strongest since May 11, while the dollar held firm near a seven-week high against a basket of currencies.
“What we’re seeing is some short covering or value buying after significant losses yesterday, but in the short term there are still risks from Europe’s debt issues and softening economic data,” said Ben Le Brun, market analyst with CMC markets in Sydney.
But analysts expect oil prices to head higher after the current correction, as strong demand from emerging economies draws down on global inventories and puts a strain on Opec’s spare capacity.
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“While near-term downside risk remains . . . we believe that the market will continue to tighten to critical levels by 2012, pushing oil prices substantially higher to restrain demand,” said US investment bank Goldman Sachs in a research note on Monday.
The influential Wall Street Bank, which in April had predicted the major correction in oil prices earlier this month, said on May 7 that oil could surpass its recent highs by 2012.
Echoing this view was Morgan Stanley, who raised their 2011 Brent crude forecast to $120 a barrel, from $100 previously, and upped its 2012 target to $130 from $105.
The loss of some 1,5 million barrels per day of Libyan production and firm demand from emerging economies, will lead to tighter inventories in the second half of the year, the bank’s analysts said in a report.