Oil prices held steady Thursday after jumping to a record near $124 a barrel in the previous session, as investors captivated by upward momentum seemed to ignore indications of growing U.S. crude and gasoline supplies.
Analysts had no clear answer for what prompted a surge that pushed prices past $120 for the first time earlier this week.
The fact that prices didn’t decline sharply after the weekly U.S. inventory report signaled to some investors that the market was ripe for another rally.
“The bulls are in control and there’s a lot of momentum driving the oil price up,” said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. “Participants now tend to focus on only the bullish elements of the news out there.”
Light, sweet crude for June delivery fell 28 cents to $123.25 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.69 on Wednesday to a record finish of $123.53 a barrel.
It later jumped to a trading record of $123.93 a barrel in the electronic session.
Oil prices at first waffled on Wednesday as traders were torn between relief that crude and gasoline supplies are rising and worries about rising demand and falling distillate stockpiles.
“Another example of ... zeroing in on the bullish news is this inventory report out of the U.S.,” Shum said.
The Energy Department’s Energy Information Administration said in a weekly report that inventories of distillate fuels, which include diesel and heating oil, fell unexpectedly while gasoline demand rose slightly last week. Traders chose to focus on those numbers and shrug off crude inventories, which rose much more than analysts predicted, and gasoline supplies, which increased when expected to decline.
Some evidence that investors were buying simply to keep up with the market’s momentum came from the fact that a stronger dollar has had little or no impact on trading.
“The trading mantra that we observed the last few months between the movement of the U.S. dollar and oil price movements appears not to hold water the last few days,” Shum said.
The dollar’s protracted decline against the euro and other foreign currencies since the middle of last year has played a major role in oil’s rise by attracting investors looking for a hedge against inflation.
When the dollar reverses course and strengthens, the effect usually reverses, sending oil prices lower — but not recently, as Shum noted.
In currency trading Thursday in Asia, the dollar has continued to climb against the euro, which at one point fell to $1.5285, its lowest level since March 11.
“Clearly the current spike in oil prices has been sharp and furious and with little in the way of fresh impetus and lack of supporting fundamentals a retracement must surely be on the cards,” said Paul J. Harris, head of natural resources risk management at the Bank of Ireland Global Markets.
“That said, in current conditions it is difficult to call exactly when the bearish elements will prevail. More importantly, the key issue is how far that pullback will be, with oil prices below $100 ... (a barrel) at this stage a dim and distant memory.”
In other Nymex trading, June heating oil and gasoline futures fell slightly to $3.4437 and $3.1142 a gallon (3.8 liters.) Natural gas futures rose by more than 4 pennies to $11.369 per 1,000 cubic feet.
In London, June Brent crude futures fell 18 cents to $122.14 a barrel on the ICE Futures exchange.