Global glut send USA oil tumbling 2%

Crude oil futures plunged by Rs 86 to Rs 2,747 per barrel today as speculators reduced bets amid a weakening trend in Asian trade. The contract rose 48 cents to $44.66 on Friday.

The strength of the us dollar, which was trading near seven-month highs, has a negative impact on crude prices, as it makes oil and other commodities more expensive for holders of other currencies.

“WTI once again came under pressure, dipping below key US$40 before recovering slightly, as USA crude stockpiles continued to increase, keeping inventories over 100 million barrels above the five-year average”, said Bernard Aw, market strategist at IG Markets in Singapore.

Oil prices could plunge to the lows of mid-$20s a barrel next year if OPEC doesn’t change its policy to stabilize the market, said Venezuelan Oil Minister Eulogio Del Pino. “Any price upswing that would emanate off of a production cut would simply ignite activation of a large amount of US drilled but uncompleted wells capable of offsetting a major portion of any cut in OPEC output”.

BMI Research, part of the Fitch ratings agency, said: “What is underway now is a structural market rebalancing in which low oil prices clear out high cost production – a relatively small part of which is US shale”.

For Asia, the losers from cheaper prices include the region’s biggest oil producer, China, followed by India, Indonesia and Malaysia, along with Australia’s emerging LNG industry.

A top Fed official said on Saturday that there is a “strong case” for raising interest rates when Federal Reserve policymakers meet next month, as long as United States economic data does not disappoint. USA imports from Venezuela have been on an overall decline in recent years.

Light, sweet crude for December delivery, a contract that expired at settlement, lost 0.4% to $40.39 a barrel.

USA crude supplies of last week gained 0.3 million barrels to 487.3 million barrels, 106.2 million barrels more than one year ago, according to the US Energy Information Administration’s Wednesday weekly report. “This would mean that oil prices should be holding steady this week and should mean that supports of $40 and $43 for WTI and Brent January 2016 should hold”, he said.

Compounding the production glut is an expectation of a mild winter as a result of an El Nino weather pattern, which is expected to limit heating oil demand.

“The OPEC factor has been mostly priced in but when the sanctions against Iranian oil are fully lifted, we might see another price collapse”, said Daniel Ang, a Phillip Futures energy analyst.