Oil futures rose Thursday, with analysts and traders pointing to short covering ahead of the long weekend as the likely cause.
Futures got off to a choppy start but rose in tandem with stocks and other risk markets after the release of better-than-expected first-time jobless claims data in the U.S. But oil remained buoyant even as stocks turned south once again. Short covering can cause prices to rise because traders who were betting against the market must purchase contracts to close out the trade.
"I don't think this is buying per se coming into the market," said Stephen Schork, of advisory firm The Schork Group. "Volumes are generally weaker and we're not seeing any sort of sea change in open interest. I think this is just book squaring."
Added Tom Bentz, director of BNP Paribas Prime Brokerage: "People don't like being short over weekends, especially long weekends."
Light, sweet crude for May delivery settled up $1.84, or 1.8%, at $103.31 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange was up $1.06, or 0.9%, at $123.40 a barrel in late trade.
The Labor Department said initial jobless claims fell to the lowest level in four years last week, decreasing by 6,000 to 357,000. The result was better than the 360,000 claims expected by analysts. Equity markets, which had been trending lower on Spanish debt worries and discouraging European economic data, reversed course and headed higher. Oil futures followed close behind; analysts said the jobs data probably didn't drive buying in oil, but at least may have stopped the market from falling further.
"It's supportive, but not bullish," said Tony Rosado, a broker with GA Global Markets.
Traders have been reducing their long bets on oil in recent weeks, and there was little reason for new optimism based on fundamentals Thursday. Rhetoric between Iran and the West has propped up crude prices most of the year so far, but as it has cooled the market has begun refocusing on growing supplies in the U.S. and falling demand. Government data released Wednesday showed U.S. oil stockpiles rose by nine million barrels, the largest weekly increase in more than three years and the highest inventory level since last June. Analysts expected a 1.9 million-barrel rise. The data showed inventories are growing as U.S. production surged 7% over year-ago levels and implied demand fell 4.7%. Futures on Wednesday settled at their lowest level since Feb. 14, after trading at a recent high above $110 a barrel last month.
Many traders and analysts believe crude futures are poised to fall further, as other factors weigh on the market. Western nations have recently discussed releases from strategic petroleum reserves to tame market prices, and Fed minutes released Tuesday showed another round of monetary stimulus, which typically spurs commodity markets higher, appears unlikely.
"The complex is beginning to break down under the pressure of mounting U.S. crude supplies, reduced appeal for oil futures as an asset class, a declining euro and an Iranian risk premium that is looking fully priced," advisory firm Ritterbusch and Associates said in a note. "With fundamental and technical factors now aligned, a violation of the $100 mark is looking highly likely with an ultimate move down toward the $94-$95 area expected."
Front-month May reformulated gasoline blendstock, or RBOB, settled up 0.69 cent at $3.3405 a gallon. May heating oil settled up 0.83 cent at $3.1692 a gallon.
More information on settlements and highs and lows for futures on Nymex and ICE platforms can be found by searching for the following headlines:
Nymex Light Crude Oil Close
Nymex Harbor RBOB Gasoline Close
Nymex Heating Oil Close
ICE Brent Crude Oil Close
ICE Gas Oil Close
-By Christian Berthelsen, Dow Jones Newswires; 212-416-2381; email@example.com