Oil at 2-1/2-month low on OPEC surplus worry, USA inventories

USA crude oil prices fell in early Asian trading yesterday after industry data showed an increase in United States stockpiles, while fears that Japan’s economy may have fallen into recession added to demand woes. Never before in the past 25 years have there been two years of declining investment.

At the same time, oil producers have hiked their short positions in Brent futures to record highs of nearly 1.3-million in a sign that they are increasingly hedging their production in expectation of falling prices.

Developed countries have continued stockpiling oil and commercial inventories in OECD nations now stand at a record 3 billion barrels, the IEA said.

Meanwhile, crude oil production is forecast to decrease till the third quarter of 2016 before picking up.

Oil prices were higher on Tuesday after the IEA (International Energy Agency) reported exceptional declines in investment.

Oil prices have lost about 40 percent in the past year as the OPEC defends its market share against rivals such as the USA shale industry, which is faltering only gradually despite the price collapse.

The IEA, in its Monthly Oil Market Report, said that ballooning global stockpiles of crude and oil products could increase the overhang into next year.

The glut is the result of rapid production of oil by the 12 members of the Organisation of Petroleum Exporting Countries (OPEC), and strong production by non-OPEC suppliers. Forecast West Texas Intermediate (WTI) crude oil prices average $4/b lower than the Brent price in 2015 and $5/b lower in 2016. “As the next OPEC meeting on Dec 4 looms closer, speculation over what the cartel will do next will rise”. Oil is sensitive to changes in the dynamic between supply and demand and a slower pace of economic growth in China could translate into lower demand for commodities such as oil down the line. The EIA estimated refineries processed more than 15.9 million barrels per day, up 302,000 barrels per day from last week and 89.5 percent of total operating capacity.