Brent Rises After Last Week’s Record Rout

Brent crude rose above $110 a barrel on Monday on a weaker dollar and concerns over global oil supplies, after losing $16 last week in its biggest ever decline in dollar terms.

After the massive losses for oil on Thursday, banks Goldman Sachs and JP Morgan both predicted increases for crude because of tight supplies.

The dollar also reversed direction, with euro bouncing back in early Asian trade as traders scooped it up after a steep drop last week, helping send the greenback down 0.4 percent against a basket of currencies.

“The dollar should remain weak in the short term. The ECB didn’t raise interest rates and that caused the euro to fall last week, but QE (quantitative easing) in the U.S. will continue until June,” said Tony Nunan, a risk manager with Mitsubishi Corp. in Tokyo.

However, uncertainty over how the euro zone will tackle debt crises in some of its member countries could come back to haunt the single currency.

In London, Brent crude for June rose by 92 cents to $110.05 a barrel. U.S. light, sweet crude, which lost a record $16.75 last week, was up by $1.21 to $98.39.

The Reuters-Jefferies CRB index, a global benchmark for commodities prices, last week staged its biggest weekly drop since late 2008.

“The market is likely to trade sideways till the dust settles and new data emerges,” said Nunan.

According to technical charts, Brent futures are expected to revisit Friday’s low of $105.15 per barrel, while U.S. crude could head back down to $94.63, said Reuters market analyst Wang Tao.

Ongoing unrest in the Middle East and North Africa and tightening oil supplies will continue to support prices, analysts said.

“While financial bush fires or perhaps a rapid resolution to the Libyan civil war could radically alter market dynamics, the balance of both risks and fundamentals still points to a supply-constrained world,” said U.S. investment bank J.P. Morgan in a research note, echoing an earlier call by Goldman Sachs.

J.P. Morgan raised its 2011 Brent forecast by $10 to $120 a barrel, and expects the global market to be under supplied for the rest of the year by 500,000 barrels per day.

Goldman Sachs, which in April predicted a major correction in oil prices, on Friday said oil could surpass its recent highs by 2012 as global oil supplies keep tightening.

Iran’s OPEC governor Mohammad Ali Khatibi told Reuters on Sunday that he expects the price of oil to pick up again during the start of the summer season, but said that the market is currently well supplied.

OPEC is due to meet in June, and if supply remains at the current levels there will be no need to boost output, Khatibi added.

The disruption of oil exports from Libya and the weaker dollar sent crude to its highest level since 2008 this year, with U.S. crude over $114 a barrel at the start of May, and Brent topping $127 a barrel in April.

Chinese Inflation Eyed

Traders expect prices to be rangebound ahead of key Chinese inflation data expected on Wednesday. A higher than expected reading might revive expectations of more policy tightening from Beijing, dealing a further blow to beaten-down commodities.

“The Chinese PMI data is going to be key this week on how the market moves. More negative data is going to be bad for the market,” said Nunan.

Data from Beijing is likely to include CPI, which may show that inflation in April eased from a 32-month high due to a slight decline in food prices.

CNBC