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Oil is hovering around 3-month highs and traders are getting nervous

Mar 18, 2016, 13:18 IST

Traders are nervous about oil going much higher...Shaun Botterill/Getty Images

TOKYO (Reuters) - US oil futures flirted with new highs for 2016 on Friday, adding to strong gains the previous session as optimism grew that major producers would strike a deal to freeze output, while a more benign interest rate environment also supported prices.

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But gains have been pared and oil prices are falling again as London wakes up, although only just.

US crude rose as far as $40.55 (£28.05) in Asian trade overnight - its highest so far this year. On Thursday, the contracted rose 4.5% to close at $40.20 (£27.81), after climbing as high as $40.26 (£27.85).

At pixel time (7.35 a.m. GMT/3.35 a.m. ET) though, US crude is down 0.27% to $40.09 (£27.74). UK Brent oil is down 0.43% to $41.35 (£28.61).

But we're still seeing prices hover around 3-month highs:

Investing.com

Oil prices have surged more than 50% from 12-year lows since the Organization of the Petroleum Exporting Countries floated the idea of a production freeze, boosting Brent from about $27 a barrel and US crude from around $26.

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US oil is heading for a fifth week of gains, the longest rising streak in about a year, while Brent is on course for a fourth weekly increase, the longest run in about 12 months.

But some are urging caution after the strong gains. "Global fundamentals are little changed and oil has instead been lifted by higher risk-appetite," BNP Paribas said in a note.

"A dialogue among key producing countries to address oil output will at best yield a decision to freeze output, but not the much-needed reduction required to rebalance the market," BNP said.

BNP estimates there will be a 1 million barrel increase in global stocks by the end of the first half of 2016.

Still, a weakening dollar after a Federal Reserve policy decision on Wednesday that indicated two US rate hikes this year instead of four is also attracting oil buyers that hold other currencies.

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OPEC kingpin Saudi Arabia and non-OPEC producers led by Russia will meet on April 17 in the Qatar capital Doha, aiming for the first global supply deal in 15 years.

(Reporting by Aaron Sheldrick; Editing by Joseph Radford)

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