Oil drops on supply glut despite cut in United States oil rigs

Morgan Stanley’s commodities research team said they expected to see a rise in the physical market towards the end of the year, as refinery margins remain robust and maintenance schedules for next month are expected to be light.

Benchmark front-month Brent futures for January fell 47c, or 1.05%, to $44.19 a barrel, recovering from a session-low of $44.04.

The ANZ note added that the markets are also eyeing any change in USA crude oil stocks with the market expecting a small increase.

Saudi Arabia said in a statement it was ready to work with other oil producing and exporting countries to stabilize prices.

“ETF investors continue to find the temptation to call a bottom in oil too strong to resist”, said Eric Balchunas, a Bloomberg Intelligence analyst. The European benchmark crude traded at a premium of US$3 to WTI. In the Brent market, funds held the most bets on falling prices since October 2014, according to Intercontinental Exchange Inc.

U.S. crude’s West Texas Intermediate (WTI) January contract also shed 31 cents or 0.74 percent at $41.59 a barrel against its previous settlement at $41.90.

“The problem for the oil market is that although [falling USA output] has contributed to a narrowing of the statistical surplus of oil supply over demand, there has been no discernible slowdown yet in the pace of inventory accumulation”, analysts at Barclays said in a report.

“There is a big drop in the production capacity of oil wells across the world, estimated around 4 million barrels a day, which means the petroleum industry needs new additional production capacity of around 5 million barrels a day every year…to meet the global demand”.

On Sunday Venezuelan oil minister said OPEC can not allow an oil price war and must take action to stabilise the crude market soon. OPEC should make room for increased Iranian crude production within its ceiling of 30 million barrels a day, the nation’s Oil Minister Bijan Namdar Zanganeh said.

But concern over global oil supply re-emerged on Monday in the runup to OPEC’s December 4 meeting, as analysts pointed out that the statement does not mark a shift in Saudi policy or a commitment to slash output.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell as much as 0.70% to an intraday low of 98.80, before moving back above 99 in US afternoon trading. The contract rose 48 USA cents to US$44.66 on Friday.