SINGAPORE (Reuters) - Crude futures pulled back from 2016 highs early on Thursday as traders locked in profits after April's sharp rally, but analysts said falling U.S. production and strong investor appetite could push prices higher soon.
International Brent crude futures were trading at $46.92 per barrel at 0521 GMT, down 26 cents from their last settlement. U.S. West Texas Intermediate (WTI) futures were down 26 cents at $45.07 a barrel.
The dips came after both benchmarks rose on Wednesday to their highest levels for 2016 in what has been one of the steepest price increases in recent years. Both Brent and WTI have rallied more than 70 percent since their respective 2016 lows in January and February.
Record crude storage figures may have spurred some investors to take profits on Thursday by closing long positions, traders said, and government data on Wednesday showed that U.S. crude stocks climbed 2 million barrels last week to an all-time peak of 540.6 million barrels.
Despite the price falls, analysts said that sentiment had clearly turned bullish, and that further price rises were likely.
"We...appear to be at the beginning of a bull market," U.S. investment bank Jefferies said on Thursday.
Analysts said falling output in the United States and a weak dollar were supporting prices and attracting investors.
"The recent trend of rising crude oil prices received another boost after U.S. output was shown to have fallen again last week," ANZ bank said, following a release by the U.S. Energy Information Administration (EIA) showing that crude oil production fell to 8.94 million barrels per day (bpd) last week, down almost half a million bpd from this time last year.
While Jefferies said it expected the market to remain oversupplied in the near term, it said that crude inventories should begin to fall by the third quarter, "setting the stage for a fundamental recovery."
Analysts said that further bullish momentum could emerge due to ongoing weakness in the dollar, which is down over 5 percent this year against a basket of other leading currencies, as a weaker greenback makes dollar-traded crude cheaper to buy for countries using other currencies at home.
The Federal Reserve said Wednesday that it would leave U.S. interest rates unchanged and that it was in no rush to hike rates soon.
Jefferies also warned that global spare capacity, estimated around 2 million bpd, or 2 percent of demand, was "precariously low" given the frequency of unexpected disruptions recently, including pipeline interruptions and strikes, as well as "the dire fiscal situation of producers like Venezuela, Iraq and Nigeria."