LONDON (Reuters) - Oil rebounded on Thursday, with Brent pushing towards $115 after its second-largest drop in two years on Wednesday created buying opportunities and the IEA forecast higher demand and reduced OPEC spare capacity.
But traders and analysts said the overall trend remained downwards, given a stream of negative economic data coming out of the United States, the Greek sovereign debt crisis and rising risk aversion amongst investors, who returned to the safe haven of the U.S. dollar.
“I wouldn’t read too much into today’s price increase, the overall sentiment is still negative,” said Carsten Fritsch, an analyst at Commerzbank in Frankfurt.
Brent crude for August, the front-month contract after July expired on Wednesday, was up $1.80 to $114.81 a barrel by 9:43 a.m. as bargain hunters nipped in.
U.S. crude was up 83 cents to $95.62 a barrel at the same time, following larger-than-expected stock draws week-on-week, according to Energy Information Administration data.
The International Energy Agency (IEA) called on oil-producing group OPEC to raise output, saying that seasonal demand from refiners was set to soar in the third quarter. It saw a tighter oil market to 2012 than previously expected, but traders were unimpressed.
“I am not sure the IEA report will be enough to create a sustained move to the upside,” said Tony Machacek, a trader at Bache Commodities. “I would expect further downside after yesterday’s action.”
He pointed out that stock markets had also taken a hammering on Wednesday, and the dollar had strengthened as the euro came under sustained pressure.
“We’re reacting to the substantial sell-off last night -- U.S. products got absolutely battered,” he said, adding that U.S. crude was challenging two-month lows.
The dollar .DXY was up 0.07 percent against a basket of currencies at 9:38 a.m., whilst the euro slumped to a three-week low.
Fritsch also pointed to the dollar, weaker stock markets and higher risk aversion. “I think we can expect oil prices to resume their downward trend.”
Fritsch said yesterday’s weak U.S. data and the ongoing problems in the eurozone were weighing on markets.
“We have seen an escalation of the crisis in Greece with violent protests, a government reshuffle, and the ratings agencies are still rating the risk of restructuring or default. This helps keep risk aversion elevated.”
Greek Prime Minister George Papandreou said he would form a new cabinet and seek a vote of confidence from his fractious Socialist party to push through a harsh austerity bill, as riot police battled tens of thousands of protesters in the heart of Athens.
Greece must pass a new round of tax rises and spending cuts to receive a new EU/IMF bailout and a 12 billion euro (10.5 billion pound) aid tranche.
Edward Meir, senior commodity analyst at MF Global, agreed the trend was downwards: “Until such time as the markets get a clear indication as to which way the authorities are leaning, we expect to see further euro weakness, dollar strength, and consequent downward pressure on commodities,” he said in a note.
The commodities markets pulled back sharply on Wednesday, with U.S. crude down more than 4 percent to $94.81, the lowest settlement since February 22. Brent crude gave up nearly 6 percent in its second-largest single-day drop since April 2009.
Ben Westmore, a commodities analyst at National Australia Bank, said there was a little bit of buying on weakness after the fall overnight.
Meir said that from a technical standpoint, U.S. crude was at a significant trading range support at around $95. “But given the momentum behind Wednesday’s decline, we suspect this level will eventually give way. Brent is in far better technical shape.”
Additional reporting by Alejandro Barbajosa in Singapore, editing by Jane Baird