Demand Potential Debated After Oil Rebounds on Summer Driving Hopes, Weaker Dollar

Meanwhile, Canada changes import dynamics in U.S. western states: File Image/Pixabay

Just as a strong dollar on Friday contributed to a dip in oil prices, the easing of the greenback on Monday – along with ongoing geopolitical tensions and hopes for strong summer driving demand - resulted in modest gains for the commodity.

Brent settled up 77 cents at $86.01 per barrel, while West Texas Intermediate settled up 90 cents at $81.63 per barrel.

WTI and Brent are on pace for a monthly gain of 6 percent and 5.4 percent, respectively.

Tamas Varga, analyst at PVM, said, "The chief underlying reason behind the price strength ... is the growing confidence that global oil inventories will inevitably plunge during the summer in the northern hemisphere."

But Robert Yawger, executive director of energy futures at Mizuho Securities USA, struck a downbeat stance by telling clients that "Gasoline posted its first draw of the summer driving season in last week's report, and crude oil posted a storage draw on bullish import/export dynamics; unfortunately, the report was so good that it will be hard to repeat the feat again this week."

Meanwhile, Ukraine increased its drone attacks on Russian refineries, and European Union countries agreed on a new package of sanctions against the former Soviet Union, including a ban on reloading Russian liquefied natural gas in the EU for further shipment to third countries.

For its part, Russia blamed the U.S. for a Ukrainian missile strike on occupied Crimea and warned of "consequences" for the attack.

Ryan McKay, senior commodity strategist at TD Securities, addressed the issue of these tensions' effect on oil trading for the near future: "A renewed surge in our energy supply risk indicator can further support price action in the near term," he told clients in a note Monday, but he added that funds would start to liquidate long positions if WTI falls below $81 per barrel.

In other oil news on Monday, according to figures from Reuters, the western U.S. states of California and Washington will be importing 150,000 barrels per day (bpd) of Canadian crude in June, up seven-fold, while Iraqi crude exports to U.S. West Coast refiners will drop from 76,000 bpd in May to just over 3,500 bpd in June.

The U.S. West Coast and markets across Asia are expected to be the two top destinations for crude now flowing through the expanded Trans Mountain pipeline in Canada, which went into operation last month.