Oil up $2 as IEA sees signs 'tide will turn'

[January 16, 2015]  By Christopher Johnson
 
 LONDON (Reuters) - Brent crude oil rose more than $2 to around $50 a barrel on Friday after the West's energy watchdog forecast the market sell-off would end, although analysts said a strong rebound soon was unlikely as global output continued to outweigh demand.

Oil prices have dropped by nearly 60 percent since June as production around the world has soared, outstripping demand at a time of lackluster global economic growth.

The International Energy Agency (IEA) said the market could fall further before it recovered, but there were already signs lower prices were beginning to curb production in some areas, including North America.

"How low the market's floor will be is anybody's guess. But the sell-off is having an impact," the IEA said in its monthly report on Friday. "A price recovery - barring any major disruption - may not be imminent, but signs are mounting that the tide will turn."

"A rebalancing may begin to occur in the second half of the year," the agency added.

Brent crude futures for March jumped to a high of $50.16, up $2.49 from Thursday's close, when the front month was the expired February contract. Brent later eased back and was trading around $49.70 by 1215 GMT. U.S. crude traded at $47.35 a barrel, up $1.10.

Analysts said Brent, which traded steadily above $48 a barrel before the IEA's announcement, also had strong technical support.

"The market seems ready to embrace a counter-movement following the dramatic slump observed in recent weeks," said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.

"We envisage a noticeable price recovery in the second half of the year."

Despite the price gains, oil was volatile after Switzerland jolted traders by abandoning its currency cap on Thursday. The move triggered the euro's biggest ever one-day drop against the Swiss franc and an 11-year low against the dollar.

"Potential dollar strength into 2015 may be another factor at play in pressuring oil prices lower. The weakness in the crude space is likely to keep sentiment jittery," OCBC bank said in a report.

In China, a key source of global oil demand, there were signs of weakness as the central bank announced new support measures after data showed a drop in bank lending and foreign investment growth falling to a two-year low.

(Additional reporting by Henning Gloystein in Singapore; Editing by David Evans and William Hardy)

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