Benchmark oil prices may resume their rally this week, boosted by positive economic data from the U.S. and China, CNBC's weekly market survey found.
Prices last week retreated from an 18-month high above $87 a barrel reached on Tuesday as the U.S. dollar strengthened and U.S. crude stockpiles rose to their highest level in nearly 10 moths.
Crude futures settled on Friday at $84.97, little changed for the week. CNBC’s oil market poll last week correctly predicted prices would consolidate at around $85.
This week six out of ten respondents, or 60 percent, forecast prices will climb, 30 percent are calling for a reversal and one expects prices to be little changed.
“I am in the bull camp,” said Christopher M. Mennis, President of New Wave Energy LLC. “Oil prices will breakout on positive economic data. Technically, the breakout has occurred already.”
Markets have much to digest this week with Dow component Alcoa kicking off U.S. earnings season after the market close on Monday.
Investors will tune in to Federal Reserve Chairman Ben Bernanke’s testimony before the Joint Economic Committee for any hint on the pace of monetary tightening in the U.S. and the broader economic outlook.
Any suggestion by Bernanke that normalization of policy may occur at a faster pace than expected could be bearish for oil.
“With the Federal Reserve allowing money to flow like water, the dollar should remain weak, and the Dow Jones should continue to press ahead into the future, both factors are pushing up the price of oil,” said Mike Sander of Sander Capital Advisors.
Meanwhile, macro-economic data from the U.S. and China will be scrutinized for evidence of the recovery’s momentum with the release of retail sales in the U.S. and first-quarter GDP in China amongst the highlights.
Strong China data may not necessarily be taken at face value. Investors may draw the conclusion that upbeat growth numbers may build the case for additional tightening measures from Beijing to cool down the overheating economy, which could be negative for commodities demand.
Elsewhere, while the announcement by Eurozone finance ministers over the weekend of a 30 billion Euro aid package for debt-laden Greece will be broadly positive for risk assets including commodities, lingering concerns over sovereign debt could create potentially more price volatility.
From a fundamental perspective, many in the market continue to question whether the rally over mid-$80s is justified.
“Fundamental conditions in the market continue to disappoint,” said Ben Westmore, Economist for Australia & Commodities at the National Australia Bank. “The trend increase in crude stocks and the fact that gasoline stocks remain unseasonably high say nothing for the current supply overhang in the oil market being addressed in the short term. I see a price around the low $80 as more in accordance with fundamentals.”
Headline crude oil stockpiles rose nearly 2 million barrels to a little over 356 million in the week beginning March 29, the U.S. Energy Department reported on April 7.
Crude supplies are about 7 percent higher than the five- year average for the period and last week’s increase was the 10th straight gain.
Gavin Wendt at Mine Life Pty said weekly U.S. inventory levels were “short term factors” that didn't reflect increasing oil demand in emerging economies while crude usage flattens in mature markets like North America and Europe.
“And the age-old issue of oilfield decline and longer-term supply-side restrictions means
$100 a barrel-plus oil is once again not far off,” he warned.
China -- the world's second largest oil consumer -- imported about 21 million tons of crude oil last month, equivalent to 4.98 million barrels per day, preliminary data from the General Administration of Customs said on Saturday, just short of the record high reached in December 2009 at more than 5 million barrels a day.