Oil continued higher into the afternoon, with WTI crude once again approaching record levels, in technically driven trade supported by strong supply and demand fundamentals.
Expectations the US Energy Information Agency will report a further drop in crude stocks and increasing demand from refineries in its weekly report tomorrow are continuing to underpin gains, analysts said.
'The market is still very technically driven,' said Olivier Jakob, an analyst at Petromatrix. 'WTI tried to break through the 77.20 usd level twice yesterday and didn't manage to.'
'We saw gains capped last week by weak equities, but now we are seeing the stock market back up we are back to the same technical play of trying to break new highs.'
At 12.54 pm, London's benchmark Brent crude contracts for September delivery were up 54 cents at 76.28 usd per barrel.
Meanwhile, New York crude contracts for September delivery were up 48 cents at 77.31 usd per barrel, within a dollar of the all-time high of 78.03 usd.
Oil weakened last week after the US stock market suffered its second worst week this year, with the DJIA dipping over 500 points in a two-day period.
However, buoyant supply and demand fundamentals have firmly underpinned the market since, analysts said, with WTI bouncing back to within 1 cent of all-time highs at the end of last week.
Expectations demand will remain firm were boosted on Friday by the release of better-than-expected US second-quarter GDP data, while supply remains a worry.
The International Energy (otcbb: IENI.OB - news - people ) Agency has repeatedly called on OPEC to increase its production of crude oil to meet rising demand, but the cartel has so far refused, claiming product shortages are due to a lack of refining capacity, not of crude.
According to Iranian press reports, Iran's oil minister Kazem Vaziri-Hamaneh said yesterday that the Islamic Republic does not support higher oil production among OPEC member states, which would loosen fundamentals and dampen oil prices.
'OPEC production cuts have fuelled fears of an oil shortage which could be assuaged if OPEC raised production,' noted analysts at Commerzbank.
The moves of both Brent crude and WTI into backwardation -- where prices in the future months are lower despite storage costs -- is ample demonstration that demand remains firm relative to supply, adding to positive sentiment towards the oil complex, analysts said.
'Bullishly, we note that yet again the term structure of both WTI and Brent has moved to a backwardation from contango,' said Dennis Gartman, editor of the Gartman Letter.
'Backwardated markets are the result of strong demand relative to supply, as the market makes it unprofitable to hold supplies and as demand calls upon the commodity in question to come out of storage,' he added.
'Pronounced backwardation in both cases should continue to be attractive to investors, since it appears more attractive at present to invest in later months than in the spot market,' noted Commerzbank.
Meanwhile analysts expect the EIA to report a further draw on US crude stocks and an increase in refinery runs in the week to July 27 tomorrow.
Crude inventories dipped 1.1 mln barrels in the previous reporting week, while gasoline stocks increased by a larger than expected 800,000 barrels.
source:www.forbes.com
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