LONDON: Oil rebounded by more than $2 on Monday due to bargain hunting after Brent crude lost almost $17 last week, but earlier bigger gains were pared after S&P cut Greece’s debt rating and the dollar rallied against the euro.
At 1410 GMT Brent crude for June was up by $2.79 to $111.92 a barrel after earlier climbing over $4 to $113.19. US crude rose by $2.37 to $99.55, after reaching an intraday high of $100.69 a barrel, up over $3.
Oil climbed higher earlier in the day on the back of dollar weakness but this reversed after ratings agency Standard & Poor’s cut Greece’s credit rating.
The euro fell to a session low while the dollar strengthened.
At 1338 GMT, the dollar was up 0.04 percent against a basket of currencies after having been down as much as 0.5 percent earlier in the day.
Traders and analysts see the interplay between the two currencies as partly behind some of the moves in the oil markets over the last few days. "You can’t split these things out at the moment," said David Morrison, a strategist at GFT.
The euro sold off last week due to an apparent delay in European Central Bank tightening when President Jean-Claude Trichet failed to use the code words "strong vigilance."
The currency’s woes were then exacerbated following reports that Greece was seeking a debt restructuring or might even leave the euro.
This was denied, but the ratings cut by S&P has put the euro back under pressure.
Despite the dollar strength, bargain hunters continued to support the oil price, traders and analysts said. "Some market participants consider the lower price levels after the sharp drop on Thursday a good buying opportunity," said Carsten Fritsch, an analyst at Commerzbank.
The Reuters-Jefferies CRB index, a global benchmark for commodities prices, last week staged its biggest weekly drop since late 2008, down 9 percent.
"We went through a pretty hefty sell-off for all markets," said Tony Machacek, an oil trader at Bache Commodities. "It smacked of funds getting sell-stops triggered. Now that long liquidation has been done, everything seems to be stabilizing."
But analysts and traders were cautious about the rebound in the oil price. Fritsch said he saw some consolidation in the coming days before the price starts to rise again.
"And in the interim we may test the lows from Friday. Technical levels have been broken and it will take some time for the markets to recover."
According to technical charts, Brent futures were expected to revisit Friday’s low of $105.15 per barrel, while US crude could head back down to $94.63, said Reuters market analyst Wang Tao.
"We had a lot of the long-side speculation knocked out on all these markets. This week it will be interesting to see if we get another leg down," added Morrison. "We might put in a double-bottom and that could set the stage for further gains."
This week the market will be looking to see if high price levels have had an impact on oil demand, with Chinese import data for April due on Tuesday and the monthly outlooks from OPEC and the IEA on Wednesday and Thursday respectively.
"Possibly we will see a slight downward revision to oil demand growth forecasts for this year and that could also cap price rallies this week," said Fritsch.
The market is also eyeing key Chinese inflation data expected this week.
A higher-than-expected reading might revive expectations of more policy tightening from Beijing, dealing a further blow to commodities. –Additional reporting by Francis Kan in Singapore