Oil Re-enters Overbought Territory As Traders Resume Worrying About Supply

Meanwhile, more bank rate hikes in Europe are overlooked: File Image/Pixabay

In what is proving to be a week of choppy trading, oil on Thursday settled 1 percent higher as schizophrenic traders once again refocused their concerns on global supply tightness and relegated their worries about bank rate hikes to the back seat.

The gains were also said to be supported by renewed optimism on the outlook for economic growth in China, which was the case earlier this week but was paused in the previous session when traders questioned whether that country's government would deliver on promised economic stimulus.

Priyanka Sachdeva, analyst at Phillip Nova, said in a note, "The Chinese authorities have signalled to step up support measures to revive the ailing Chinese economy, which in turn has spurred hopes of oil demand regeneration from the world's largest importer of crude oil."

But China wasn't the only motivation for West Texas Intermediate on Thursday settling above $80 per barrel: speculation – however unwarranted – continued to mount that the U.S. Federal Reserve is nearing the end of its monetary tightening cycle, which in turn caused Asian shares to jump to five month highs.

The optimism was undiminished even though on Thursday the European Central Bank was expected to raise interest rates for the ninth time in a row.

Dennis Kissler, senior vice president for trading at BOK Financial Securities, summarized trading activity by noting that "Crude extending the bullish rally, led by 'risk back on' sentiment in the equity markets, is keeping the buyers present in the crude space," yet "the market has gone up too far, too fast with speculative buying, and that is creating the overbought condition, so we should see some erratic corrections soon."

Still, there's no arguing against bullish sentiment no matter how shaky its foundations, and UBS analysts contributed to this sentiment by stating in a report that, "We see the oil market undersupplied…we retain a positive outlook and look for Brent to rise to $85–90 over the coming months."

In other oil related news, AAA data published on Thursday showed that U.S. retail gasoline prices reached their highest levels since November, with average prices having risen by 13.4 cents from a week ago to $3.714 per gallon.

The AAA numbers suggested that this is the highest price seen yet this year, and the second-highest price for this time of year over the last decade; however, they are still well below the $4.302 per gallon they were averaging this time last year, when Washington decided to sell off 180 million barrels of crude from the Strategic Petroleum Reserve in a questionable bid to tame prices.