US oil snaps 3-day rally, ends 1.3 pct lower at $50.56

A worker walks at Nahr Bin Umar oil field, north of Basra, Iraq.
Essam Al-Sudani | Reuters

U.S. oil prices fell on Thursday, snapping a three-day rally after notching another 2016 high, as a strong dollar sparked profit-taking in crude futures by investors.

Continuous threats by militants against Nigeria's oil industry and fear of more security incidents that could hit supplies worldwide, however, limited losses in crude.

Brent crude oil futures traded 62 cents, or 1.2 percent, lower at $51.88 a barrel, after setting a 2016 high of $52.86 a barrel earlier in the session.

U.S. crude settled 67 cents lower, or 1.3 percent, at $50.56 a barrel after also hitting a new 2016 high at $51.67.

Profit-taking emerged in crude as the dollar index rose half a percent, its most in three weeks, from jittery global financial markets that sent investors toward safe haven currencies. A stronger dollar makes greenback-denominated oil less attractive to holders of the euro and other currencies.

"So far this looks like a modest technical correction following three days of gains, rather than a major reversal," said Tim Evans, energy futures specialist at Citi Futures in New York.

But analysts also anticipate headwinds for oil in coming weeks as Canadian supplies return after last month's wildfires in Alberta's oil sands region and other oil imports grow as well to slow use in U.S. crude stockpiles.

What's helping oil?

Crude futures have almost doubled since the nearly 13-year lows of $27 for Brent and $26 for WTI in the first quarter.

"Both Brent and WTI remain above the psychological $50 level, a price area that should provide several U.S. shale producers with a positive cash flow and thus motivation to begin to slowly bring some of the drilled-uncompleted wells out of inventory and closer to a producing mode," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

In Canada, Baytex Energy Corp has restarted nearly all the heavy crude output it shut last year, sources said.

Although Baytex' production suspension was ahead of the Alberta wildfires that brought Canadian supplies to a trickle, it was a sign that the months-long rally in oil was encouraging more North American output.

Oil prices gained ground after data on Wednesday from the U.S. Energy Information Administration (EIA) showed U.S. crude stocks last week fell 3.23 million barrels to 532.5 million, the third consecutive weekly fall.

Behind oil's massive rally

The Niger Delta Avengers militant group on Wednesday rejected an offer of talks with the government to end its attacks on oil facilities and said it had blown up a Chevron pipeline site in the Niger Delta.

But some analysts said there are signs that downward pressure on prices is mounting.

ANZ bank said the rises were "tempered by an increase in (U.S.) crude production of 10,000 barrels per day to 8.75 million barrels per day and the number of active rigs increasing by 9 to 325."

Traders also warned of an ongoing build up of refined product stocks in the United States and Asia.

With fundamentals both for and against higher prices, many traders and analysts say a price of $50-60 per barrel may be fair value for oil. This is reflected in Brent's forward curve, which stays within that range until early 2021.