Oil rebounded to around $124 a barrel on Friday after Thursday’s sell off as supply concerns underpinned prices despite reassurances from the International Energy Agency (IEA).
Brent crude was up 79 cents to $123.93 a barrel by 1058 GMT after touching an intraday high of $124.20. U.S. crude futures were up 43 cents at $105.78 a barrel.
Analysts and traders said the uptick had occurred across the commodities complex as investors took the view that prices had fallen too far after Thursday’s disappointing Chinese manufacturing data and the eurozone PMI figures.
“We are seeing a general rebound in commodity prices after yesterday’s price decline - it is not just oil that is up, base metals are up as well as market sentiment stabilises,” said Carsten Fritsch, an energy analyst at Commerzbank in Frankfurt.
“Maybe some regard yesterday’s losses as exaggerated and consider lower price levels as a buying opportunity, given the continued supply risk.”
A survey by Reuters found that global oil supply outages were running at 1.2 million barrels a day in March, with civil unrest, adverse weather and technical problems all taking barrels out of the market.
“We had some bearish news earlier in the week but there are still underlying threats such as Iran and other supply disruptions,” said Tony Machacek, a trader with Jefferies Bache in London. “We are probably seeing some short covering ahead of the weekend.”
The IEA said that Saudi Arabia stood ready to fill any gaps created by Western sanctions on Iran, adding that it saw no need to release oil from strategic reserves as yet.
But investors continued to use the front month Brent and U.S. crude contracts as a geopolitical hedge, worried that military conflict with Iran will create an oil price spike that will hammer the risk assets in the rest of their portfolios.
“The Iran situation has a long way to run and that will keep the market tight and support crude oil,” said Tony Nunan, a risk manager with Mitsubishi Corp in Tokyo. “The market had fallen enough yesterday and trading will be locked in a range for now.”
Weak economic data from the eurozone and top energy consumer China had troubled the market on Thursday, but improved sentiment steadied equities in early trade on Friday, whilst the dollar weakened against a basket of currencies , helping lift commodities.
A weaker dollar makes commodities priced in dollars more affordable for buyers using other currencies.
Malaysia’s state oil firm Petronas was the latest to say it will halt imports of Iranian crude from April, sources in the company told Reuters. This follows import cuts by major buyer South Korea in the first two months of 2012.
In a concession to Asian buyers, the EU will allow some insurance on Iranian oil shipments before the bloc’s full embargo starts on July 1, member states agreed on Thursday.