LONDON – U.S. oil prices rose more than two percent Thursday to end the week above $38 a barrel as the International Energy Agency (search) revised upward its 2004 demand estimate, raising bulls' hopes for the longer run.
U.S. light crude futures closed up 86 cents or 2.3 percent on the New York Mercantile Exchange (search) at $38.40 a barrel. London Brent closed 45 cents higher at $35.74.
After falling 11 percent from last week's $42.45 record NYMEX high, prices stabilized this week ahead of Friday's closure for the funeral of former President Ronald Reagan (search) and London's shortenventories in the United States, covered their positions before the long weekend.
"It looked like a normal, short-covering rally," said Nauman Barakat, senior vice president at brokers Refco.
Analyst Phil Flynn of Alaron Trading agreed. "Crude was probably a little oversold, and you have higher demand. You still have worries about terrorism, the attacks in Iraq, and it's before the long weekend."
On Thursday, the IEA said it had revised its demand growth forecast for 2004 upward by 360,000 barrels per day to 2.3 million bpd, the steepest rate since 1980.
"Today's IEA monthly oil report paints a picture of much tighter oil market than its previous report a month ago, though still not tight enough in our view," said Barclays Capital in a research note.
"The change in the IEA's projections is certainly in the right direction, and is part of a tendency for market balances to be revised so that they paint an increasingly stronger level of fundamental support for current high oil prices," stated the researchers at the investment bank.
In the first signs of new oil in the market after Saudi Arabia's pledge to pump 9.1 million bpd for June, market sources said the Saudis had increased the allocation of July supplies to some global oil majors.
July allocations elsewhere were mixed, traders said, with several European customers reporting cutbacks in supplies.
But although state firm Saudi Aramco offered a selection of increases and decreases to its term customers, it continued to make additional barrels of July oil available for spot purchase, traders said.
Traders were watching a Nigerian general strike closely, but shipping sources said the country's 2.3 million bpd of crude exports appeared unaffected.
In Jakarta, OPEC (search) President Purnomo Yusgiantoro said the cartel had observed the price decline of the last week, and, asked by reporters if oil would fall again in the third quarter, said the group hoped for further weakness.
"It will depend on how significant the nonfundamental factors would be, because nonfundamental factors are hard to predict," he said.