Benchmark crude oil prices are expected to hold steady around $80 a barrel this week, supported by optimism about a rescue plan for debt-laden Greece and hopes that the economic recovery is gaining some momentum.
Nymex crude futures last week rose 2.3 percent or $1.84 a barrel to $81.50. Four out of nine respondents to CNBC’s weekly poll of analysts, or about 40 percent, expect prices will remain steady this week, three see prices gaining while two forecast a decline.
Crude futures in Asian trading on Monday topped $82 a barrel and could test the January highs near $84. However, fatigue has tended to set in whenever futures have attempted a sustained run above $80.
The momentum has stalled as investors believe market fundamentals don’t justify the price. The early-$80s appear the upper limit in the trading band, market watchers say.
Mike Sander of Sander Capital Advisors has a ‘neutral’ call this week and expects prices to fluctuate in a tight band between $78 and $82, supported by expected weakness in the U.S. dollar against the Euro as the single currency’s prospects improve on expectations of a credible rescue plan.
“We saw the Euro this past week rebound a bit from prior weeks thanks to improved optimism of the Union staying together,” Sander said. “That has been the primary driver for the price of oil coming back from the low $70 range back to above $80. With the Euro Zone staying intact it will take a huge amount of downward pressure off of oil.”
A less-than-forecast drop in February Non-Farm Payrolls in the U.S. will also help prop up prices but analysts were quick to point out that weather-related distortions mean markets won’t get a clear read of the economy until at least April.
“U.S. Feb. non-farm payrolls report showed lower than expected losses, so that’s constructive for outlook on GDP and oil demand growth,” Societe Generale analysts said. “SG macro research expects higher inflation over next 5-10 years.”
Meanwhile, stronger-than-expected German factory orders data also signaled a brighter macro outlook, CWA Global Markets said.
Still, oil markets want concrete and consistent evidence -- particularly related to the U.S. labor market -- that the economic recovery is gaining traction before prices can make a convincing break out of the current ranges.
Broadly, uncertainty still remains the watchword governing market sentiment. That means markets - equities and otherwise - may still be susceptible to bad news, be it sovereign debt blowouts or any nasty surprises in the data.
Although the macro-numbers suggests the jury may still be out on the pace and durability of the economic recovery, data from the U.S. Energy Information Administration last week highlighted some tentative signals that demand may be returning.
Refinery utilization rose 0.7 percentage points, the highest gain since October, and four-week average fuel demand rose 3 percent from last year, the EIA said.
“The driver was petrochemical and industrial feedstocks, a sign of a recovering industrial sector,” Societe Generale analysts elaborated.
Mark Waggoner of Excel Futures expects demand to continue picking up in the U.S. and is targeting $84 this week.
“The East coast of the U.S. has been blanketed with snow. Since this is now clearing demand should pick up as the driving season start to thaw,” he said. “Keep in mind that this is also refinery maintenance time and any pick-up in demand will be deemed bullish.”
But Rachel Ziemba, Senior Research Analyst, China and Oil Exporting Economies at Roubini Global Economics, says it’s premature to start talking about demand returning with any vigor.
“I'm not ready to call demand as strong yet,” she said. “U.S. industry still seems pretty weak to me. The year ago comparison seems good but then again global industrial output was still in freefall.”