LONDON—Oil futures clawed back some of last week's heavy losses Monday, but trimmed earlier gains as the dollar gathered strength.
The front-month March contract on the New York Mercantile Exchange was recently six cents higher at $71.25 a barrel after earlier hitting $72.08 a barrel. The front-month March Brent contract on London's ICE futures exchange was 11 cents higher at $69.70 a barrel.
Oil prices tend to retreat when the greenback strengthens as dollar-denominated commodities such as crude become more expensive for investors holding other currencies.
Analysts remained upbeat about the prospects of a recovery in oil prices despite the sovereign debt woes in Europe and talk of tighter credit in China sapping confidence in a rapid economic recovery.
Dennis Gartman, editor and publisher of the Gartman Letter, cautioned against bearish exuberance, noting that the contango price structure—in which near-term futures contracts are cheaper than contracts further out into the future—has narrowed on the back of recent price falls, and could signal a bounce back in oil prices.
"When contangos narrow as prices fall rather than widening this has historically been a sign of impending strength not impending weakness," Mr. Gartman said. "After the severity of the recent weakness, some 'bounce' is more than overdue ... it is long overdue; indeed, it is almost necessary."
Meanwhile, there was hope that colder weather in the northern hemisphere, bargain hunting by traders and a hiatus in the dollar rally could help crude recover from last week's losses.
"For now, we would venture to say that a measure of stability could be with us over the next day or two, as a combination of short-covering, this week's colder weather in the U.S., and a bit of a pause in the dollar rally could give commodity complexes a little room to push higher," said Edward Meir, senior commodity analyst at MF Global in New York.
However, other analysts remained less sanguine, arguing that fundamentally oil demand hasn't made a meaningful recovery despite colder weather in the northern hemisphere that bolstered seasonal demand for middle distillates.
"There are currently no signs that the underlying demand is picking up," said commodity analysts at Commerzbank led by Eugen Weinberg in Frankfurt. "The first cold spell at the beginning of this year already did not result in a noticeable decline in crude oil inventories and the oil price should, in general, continue its downward trend." Last week inventory figures from the U.S. Department of Energy revealed a surprise 2.3-million-barrel build in crude stocks.
Elsewhere, ICE's gasoil contract for February delivery was down $8.25 at $567.00 a metric ton, while Nymex gasoline for March delivery was up 36 points at 189 cents a gallon.
