USA crude futures edges up in early Asian trading

Translation: demand for oil is unlikely to provide the relief that energy markets so desperately need. But is the picture being painted really that bad?

A growing discount between the front month and forward contracts, which was trading near a record wide $8 a barrel, has sparked talk of traders storing more crude in the hope of delivering later at higher prices.

The WTI oil price index (NYSEARCA:OIL) has been in a “free fall”, sending prices from a high of $115 a barrel a year ago to $41 a barrel in November 2015. The energy sector has been under tremendous pressure over the last several months, and fundamentals could get much worse.

Analysis and Recommendations: The energy complex finished mixed last week with January Crude Oil posting another lower close and January Unleaded Gasoline finishing higher.

Narrower WTI-Brent differentials will not be enough to entirely wipe out the competitive advantage of the U.S. refiners that also benefit from low natural gas prices. Government data on Wednesday showed an eighth straight week of builds in United States crude inventories.

Inventories at Cushing, Oklahoma, the delivery point for the U.S. contract added 1.5 million barrels to 56.85 million barrels. “The falling USA rig count and Draghi’s hints of a more accommodative monetary policy are behind today’s rebound”.

Saudi Arabia, which is an influential member of the group, is unlikely to announce any production cutback in response to low prices.

Renewed supplies of predominantly lower quality Iranian crude following the expected sanctions relief in 2016 should result in greater competition between sour crude oil types.

Global oil supplies amounted to 97 million barrels per day in October, according to the IEA. Tehran is wasting no time in planning a large oil production comeback.

In the last six weeks, maximum of the big producers have discussed the worst possible case with investors to involve prices of $50 per barrel.

He believes that the key driver behind the recent and renewed weakness in oil prices has been the market fixation on the continued global overhang supply. As a result, oil – which was hovering around $110 per barrel just over a year ago – is now struggling to stay above $40. A warmer-than-average winter could weaken heating-fuel demand enough to trigger a drop in the price of crude to $20 a barrel, according to Goldman Sachs.