Oil jumps 2 percent despite glut, hits 2016 peaks on weak dollar

Oil pump jacks are seen next to a strawberry field in Oxnard, California February 24, 2015. REUTERS/Lucy Nicholson

By Barani Krishnan

NEW YORK (Reuters) - Oil markets jumped 2 percent on Thursday, hitting 2016 highs for a third straight day as a weaker dollar had investors shrugging off record high U.S. crude inventories and relentless pumping by major producers.

Oil prices have surged nearly 80 percent since hitting 12-year lows of around $27 a barrel for Brent in late January and about $26 for U.S. crude in mid-February.

For April, the two benchmarks are up about 20 percent, on track for their largest monthly gain in a year.

The rally, partly driven by the 5 percent drop in the dollar this year, accelerated even though U.S. government data on Wednesday showed crude stockpiles swelled to all-time highs above 540 million barrels last week.

Brent settled up 96 cents at $48.14 a barrel, after hitting a 2016 high of $48.19.

U.S. crude finished up 70 cents at $46.03, after a year-to-date peak at $46.14.

"The market seems invincible, and well supported by money flow," said Scott Shelton, broker at ICAP in Durham, North Carolina.

The dollar tumbled, making oil denominated in the greenback more attractive to holders of the euro and other currencies.

Analysts believe the global oil glut will start to ease in the second half of this year, and traders and investors have been pushing prices higher in hopes they are right.

"Clearly, the market is primarily focused on the forward supply-and-demand picture while continuing to push the bearish nearby fundamentals further into the background," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

While U.S. oil production has fallen, imports of crude have risen and the global glut looks to grow as major exporters from Saudi Arabia to Russia and Iran ramp up output in a battle for market share.

"Imports to U.S. Gulf Coast refineries have shown broad-based strength. Saudi imports haven't been at this level since April 2015," said Matt Smith of crude cargo trackers Clipperdata, which noted inflows above 1.2 million barrels of Saudi crude in the United States last month.

Oil near or above $50 a barrel could make drilling attractive again for U.S. shale producers, which would add to the glut and pressure prices.

"For producers struggling to meet debt payments and avoid breaching the terms of loan covenants, rising prices are a chance to lock in future revenue and reduce downside risks," Reuters analyst John Kemp said in a commentary.

(Additional reporting by Ahmad Ghaddar in LONDON and Henning Gloystein in SINGAPORE; Editing by Marguerita Choy and Chris Reese)