Oil has rallied 24 per cent from its January lows and is now trading at four-month highs thanks to strong US demand for petrol – but the overall trend remains bearish, Deutsche Bank and OPEC say.

Brent crude oil reached a peak of $US109 a barrel in June 2014 but fell to $US51 in January. It has since recovered to trade at $US64.10 on Monday, up 1 per cent for the session and at its highest since December. West Texas Intermediate crude has followed a similar trajectory.

“US product demand in the first quarter [of 2015] was the strongest since 2003, suggesting that lower prices are stimulating demand,” Deutsche Bank said in a research note.

“We expect this trend to continue to a lesser degree over the balance of the year, helping to tighten oil market balances and contributing to a mild price recovery.”

That was also the assessment of the Organisation of the Petroleum Exporting Countries, which released its northern summer oil market outlook several days ago.

“Worldwide gasoline demand has been soaring in recent months, driven by strong demand growth in the OECD,” OPEC said.

“In the first quarter of the year, gasoline demand in the US showed a sharp year-on-year increase of more than 250,000 barrels per day . . . the improvement was supported by a rise of almost 5 per cent in vehicle miles travelled in January, encouraged by lower retail gasoline prices.”

The rise in US demand came despite January and February being winter, which usually has a dampening effect on demand, OPEC noted.

US demand was crucial, said Deutsche Bank, as it was the world’s largest oil consumer with 21 per cent of total demand.

The low taxation of petrol further aided the pick-up in US demand, the bank said.

However, US demand would not necessarily continue to push oil prices up for the rest of 2015, it cautioned.

“Historical data shows there can be large variation between first-quarter product demand growth and annual product demand growth,” Deutsche Bank said.

“[There are] also differences between product demand (gasoline) growth and crude oil demand growth.”

Deutsche Bank forecasts that Brent crude will reach $US57.5 a barrel in June; $US60 in September and $US62.5 at the end of the year. Its forecast for the end of 2017 is $US75.

OPEC has also cautioned against an over-optimistic assessment of oil prices.

On the plus side, prices would get a boost from the onset of the upcoming driving holiday season in the US.

“[The season] is expected to provide continued support for the upward trend in gasoline demand, particularly as miles driven and new car sales have been on the rise,” OPEC said.

The “expectations for lower US crude oil production in the second half of the year” were also boosting prices.

“[However], in Europe and Asia, margins are likely to come under pressure from the expected increase in inflows from the Middle East and Russia.”

Oil prices have crashed over the past year because of competition from US shale oil producers. OPEC has driven supply up and prices down in an effort to force US producers out of business and retain market share.

Extracted in full from The Australian Financial Review.

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