Oil hits $50 for the first time in 2016

Oil prices have risen above $50 a barrel for the first time in 2016 due to supply disruptions and a decline in crude inventories in the United States.

ICE July Brent crude rose to $50.51 a barrel on Thursday and West Texas Intermediate also went over $50, rising 0.7 per cent to $50.21. They later dropped below $50 a barrel.

The new milestone represents an almost doubling of prices since 12 year lows in January and a return to levels seen in November last year.

Around 1 million barrels a day of output has been knocked out in Canada this month after wildfires hit production. Militant activity in Nigeria has also reduced output by 40 per cent to 1.4 million bpd, according to the Financial Times.

Société Générale analyst Michael Wittner said he expected crude markets to continue to be driven by supply disruptions in the two countries, according to the publication.

Meanwhile, data from the US, the world’s largest oil consumer, on Wednesday showed a 4.2m-barrel decline in crude stocks in the last week, beating expectations of a 2.5 million bpd decrease.

“Whether the bullish trend still has legs or if an imminent correction is due remains a wild guess, as speculators over-exaggerate on the upside as they did recently on the downside,” said FXTM chief market strategist Hussein Sayed.

However, OPEC’s meeting on June 2 remains to be the key risk factor in the short term as markets are eager to know whether an agreement on a potential oil freeze will see the light.”

Analysts at Citibank said oil inventories had largely topped out and should decline during the summer. They said global oil stocks could begin falling by the end of the second quarter due to the disruptions in Canada and Nigeria.

Cheaper petrol is also expected to drive demand from US drivers. The government estimates fuel demand for cars will surpass a previous record set in 2007 this year.

However, analysts said higher prices could mean some producers increase supplies and make more expensive production methods, like shale, viable again.

“The return of US oil production on the back of higher oil prices, cost deflation across the sector, and Saudi Arabia’s intentions to raise crude production and exports are headwinds to a price rally,” Citibank said.

Traders are also wary of a halt to the current price rally once refiners have met their needs for the US driving season, according to the FT.

Last year, prices rallied from January to May before collapsing again.

Gulf bourses rose in early trade in response to the increase.