Oil rebounds over $73 on dollar, equities
LONDON (Reuters) - Oil rose for a second day on Thursday as investors bought back into the market after it hit 11-week lows, but analysts said the fundamental outlook was still bearish with ample stocks to cover any rebound in demand.
The rally was supported by a 0.5 percent fall in the value of the dollar against a basket of currencies and some technical signs that the market was oversold. A weaker dollar often supports commodities because many of them are priced in the U.S. currency.
Equity markets were also stronger in Europe and Asia on Thursday.
But the supply and demand picture for oil remained negative and the wider economic picture was also gloomy, analysts said.
The benchmark U.S. crude for October was trading at $73.40, up 88 cents, by 1026 GMT (6:26 a.m. EDT) after reaching a high of $73.63, up $1.11. The contract rose more than 1 percent on Wednesday after touching $70.76, its lowest since early June. Oil has dropped about $10 from a peak of almost $83 on August 4.
ICE Brent climbed $1.07 to $74.55.
Front-month U.S. crude futures' 14-day relative strength index (RSI) fell to just 30 on Tuesday, a technical pointer to oversold conditions, but has since bounced to around 40, Reuters data show, partly on profit-taking from short positions.
"This has all the hallmarks of an upside correction or retracement in an otherwise falling market," brokers at PVM Oil Associates in London said.
Financial markets will focus on U.S. jobless claims due out later on Thursday and U.S. second-quarter gross domestic product due for release on Friday.
Edward Meir, senior commodity analyst at brokers MF Global, said the release of weekly U.S. initial jobless claims readings would grab most market attention.
"We suspect that an in-line or a better-than-expected figure will likely help Wednesday's modest short-covering rally gain further traction," Meir said.
New U.S. home sales slumped to their slowest pace on record in July and orders for costly durable goods were weak, data showed on Wednesday, heightening fears the economy was at risk of another downturn.
A slowdown in the manufacturing sector as indicated by the weak U.S. durable goods orders report "does not offer much hope for a bounce in diesel demand heading into September," Harry Tchilinguirian, strategist at BNP Paribas, said in a note.
"Similarly, labor markets offer scant support to gasoline demand, and with the end of the driving season around the corner, seasonal support will begin to fade," he added.
A negative underlying mood also prevailed in the oil market after government statistics showed total U.S. oil stocks rose to a fresh all-time high last week, with gains across the board.
The U.S. Energy Information Administration said on Wednesday U.S. crude inventories rose by a bigger-than-expected 4.11 million barrels last week.
Gasoline inventories were 2.27 million barrels higher, while distillate stocks, which include heating oil and diesel, increased by a larger-than-expected 1.76 million barrels.
In aggregate, commercial crude and product stocks rose to 1.139 billion barrels last week, topping the record weekly high of 1.13 billion barrels set in the week to August 13.
"The United States is filled-up to the rim on product stocks," said Olivier Jakob, consultant at Petromatrix in Zug, Switzerland. "The U.S. stock levels are so high that it is difficult to price any risk premiums. At current stock levels, (even) a hurricane will not be difficult to manage."
(Additional reporting by Alejandro Barbajosa in Singapore; editing by Sue Thomas)