The U.S. oil benchmark touched $40 a barrel Thursday for the first time this year, highlighting the market’s long rebound from the depths of a collapse earlier this year.
Crude oil for April delivery gained $1.74, or 4.5%, to $40.20 a barrel on the New York Mercantile Exchange, marking its highest settlement level since Dec. 3. The contract has advanced 10.6% in the last two sessions.
Since falling as low as $26 a barrel in February, U.S. oil prices have mounted a furious rally in recent weeks, surging more than 50% amid expectations that low prices would force producers to curtail output and the global glut that has plagued the market for most of the last two years would begin to abate.
While much of the gains have come on hopes of an easing supply glut, market fundamentals have been little changed. Data this week showed U.S. oil stockpiles at a new all-time high and available storage capacity in key regions becoming thinly stretched.
Still, analysts said the market’s move above the psychologically important $40-a-barrel threshold signaled a new phase of the recovery as investor sentiment becomes increasingly positive on a market that looked dismal just a month ago. Firms as historically bullish as Goldman Sachs Group Inc. said oil prices could fall below $20 a barrel.
“This is a rally based on hope of tightening supply and demand,” said Gene McGillian, a senior energy analyst at brokerage Tradition Energy in Stamford, Conn. “The fundamentals aren’t driving the market. Expectations are driving the market.”
The gains in oil prices came as the U.S. dollar weakened after the Federal Reserve lowered expectations the day before that it would aggressively seek to raise U.S. interest rates this year. A weakening dollar can drive oil higher, as it becomes more attractive to buyers using foreign currency.
The market was also buoyed Thursday by news that major state producers including Saudi Arabia and other members and nonmembers of the Organization of the Petroleum Exporting Countries have agreed to meet in Qatar on April 17 to discuss freezing output levels. Though the meeting time and place have been rescheduled multiple times, the announcement of the meeting buoyed the market and restored the prospect of a production freeze by the big global oil exporters.
Another bullish signal is that some countries indicated that participation by Iran, which had previously been a condition for an agreement, was no longer required. Iran has said it would not cap production until its output reaches the 4 million barrel-a-day peak it achieved before international sanctions were imposed on the country.