Oil posts its best week this year, but now faces headwinds

U.S. oil prices surged toward the key $50-a-barrel level this week, but the rally likely has little gas left in the tank, analysts say.

West Texas Intermediate crude futures tacked on about $4 a barrel, or 8.6 percent, this week to $49.71 for their best weekly performance all year. International benchmark Brent crude rose about 9 percent this week, topping $52 a barrel.

Saudi Arabia’s vow on Monday to cut exports in August helped kicked off the rally, while a sharp drop in U.S. crude and fuel stockpiles kept the rebound going.

U.S. crude oil’s July performance

There is fundamental support for the rally to some degree, said Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions. Wednesday’s U.S. stockpile report marked an inflection point because inventories fell below year-ago levels, she said.

But despite the move to the top of crude’s recent trading range, Essner and other analysts expect prices to remain stuck between $42 and $55 a barrel.

U.S. crude futures prices over the next year remain relatively flat. The 12-month strip price likely won’t rise above $50.15, according to Roberto Friedlander, head of energy trading at Seaport Global Securities. His analysis of charts shows a “head and shoulders” pattern, which indicates an upward trend is running out of steam.

Oil prices also crossed their 200-day moving averages, a key resistance level, meaning it will be harder to post further gains, said Matt Smith, director of commodity research at ClipperData.

“From a technical perspective, it seems as though this rally should be done,” Smith told CNBC.

One development that may help is Brent crude’s flip into backwardation, when the price for immediate delivery of crude is higher than the price of contracts for future delivery. That makes it less attractive to keep oil in storage, which in turn helps to draw down huge stockpiles of oil that have weighed on the market, Smith said.