Shocking forecast of US bank: oil prices to reach $61

Shocking forecast of US bank: oil prices to reach $61

Oil prices are rising toward a seven-week high, shrugging off comments from the U.S.Federal Reserve chairwoman that left the door open for a sooner-than-later rate increase.  Oil dipped into losses and is now climbing, moving inversely with the dollar since Chairwoman Janet Yellen's remarks at the annual central bankers' summit at Jackson Hole, Wyo. 

Ms. Yellen signaled growing conviction that the central bank will raise short-term interest rates in the weeks or months ahead, but that doesn't vary much from what many traders had expected, said Bart Melek, head of commodity strategy at TD Securities in Toronto. U.S. crude for October delivery recently gained $1.05, or 2.2%, to $48.37 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, gained 92 cents, or 1.9%, to $50.59 a barrel on ICE Futures Europe. An increase in U.S. interest rates could lift the dollar, which would make oil more expensive for traders who conduct business in other currencies. But The Wall Street Journal Dollar Index, which tracks the dollar against a basket of other currencies, recently lost 0.5%. "It's all about the dollar," said Mark Waggoner, president of brokerage Excel Futures, noting a severe lull in trading ahead of the speech and strong volume since. "Traders don't like uncertainty. They heard her, and now they can get back in."

Bank of America Merrill Lynch said Friday it is holding its forecast for Brent at $61 a barrel, with an emerging supply deficit balanced out by "modest global demand growth." It is projecting global demand growth to average 1.2 million barrels a day next year, down from 1.4 million this year and 1.6 million last year.

Demand in the industrialized world "will likely remain a drag on global oil consumption next year on weak economic growth, stagnating demographics, higher oil prices, and a reacceleration in fuel efficiencies," the bank's analysts said, contrasting that to emerging-market demand, which is likely to keep growing. "True, oil prices keep a strong correlation to the U.S. [dollar], and a hawkish Fed is a key risk to our outlook."

In Asia, September and October crude deliveries are buoyant after a summer of muted oil demand in industrial powerhouse China. The London-based Energy Aspects said in a note that storage units constructed for China's strategic petroleum reserve are coming onstream through September and October, which is driving the higher demand.

The think tank added that Chinese independent refineries, known as teapots, should also drive fourth-quarter demand as they rush to use up respective yearly import quotas.

The U.S. oil-field services company Baker Hughes releases its weekly rig count data later Friday. Last week saw a rise of 10 rigs in the U.S. and market observers will be watching to see if the recovery is continuing.

Gasoline futures recently flipped to gains, up 0.5% to $1.5192 a gallon. Diesel futures gained 1% to $1.5243 a gallon.