Crude oil prices ended a four-session decline overnight, and was lingering close to seven-month highs on Wednesday morning after a constructive report on supply increased sentiment.
On Thursday, crude oil held gains in Asia, with Brent crude climbing over $50 for the first time in almost seven months. Prices were boosted after US government data showed an extreme drawdown in crude stocks last week.
Brent crude had reached $50.12 a barrel, its highest since November 4. It closed the previous session up by 2.3 percent. Meanwhile, Brent crude for July delivery fluctuated between $48.91 and $49.68 a barrel, before settling up 0.56 percent at $48.62 on the day.
US benchmark West Texas Intermediate crude for June delivery rose 0.65 percent to $49.88 a barrel on the New York Mercantile Exchange.
"Geopolitical issues in West Africa and the Middle East, supply outages, increased demand and maybe a touch of a weaker dollar have all helped push prices higher," a chief investment officer stated.
"I don't think the rally will last because prices will reach a level that will bring U.S. shale oil output back into the market," he added.
The latest rally was driven by a report from the American Petroleum Institute, which showed a decline of 5.1 million barrels in US crude oil stockpiles. The figures resulted to the largest inventory draw since December last year.
On the other hand, gasoline inventory surged by 2.04 million barrels on the week, while distillate fuel stockpiles lost 1.28 million barrels, marking the sixth consecutive week of declines. An increase in gasoline inventories can trigger warning signals for market analysts when crude supplies approach total capacity.
Oil production dropped by 24,000 barrels per day to 8.791 million barrels per day, standing near lows from September 2014. Crude output across the United States has plummeted in eighteen straight weeks.
Crude oil plunged over the past two years, weighed down by a global oversupply. However, the commodity has rallied notably since February on hopes for production cuts and has been cushioned again by unexpected production outages in countries such as Canada and Nigeria, that even bearish analysts assume to temporarily re-balance the market.
OPEC members such Qatar have suggested a deal at the upcoming meeting of the organization next week. However, its two leading producers – Saudi Arabia and Iran – have implied that they will continue to boost exports. As supply outages are settled, this could immediately bring back a supply glut in the following months at a time when the lump of global crude inventories is at the highest level.
According to an analyst, the world was still oversupplied with crude oil even with elevated demand and supply interruptions from Canadian wildfires and violence in Libya and Nigeria.
"Certainly $50 is a psychological barrier. There is a momentum, people will try and push it up over that," he said. "From a practical point of view will there or will there not be a sustainable increase above $50? At the $50-$55 range there has got to be a good chance of seeing the peak."
Reports on Thursday said that Indonesia, Malaysia and Vietnam would transform into net crude importers over the next five years.