Oil Prices Pressured By Stronger Dollar, Global Oversupply of Crude

Oil prices increased on Wednesday following a rise in USA crude stocks and a decline in U.S. oil rig counts, hinting that companies were waiting for higher prices before returning to the well pad. Cushing, Oklahoma, is the delivery point of crude oil futures contracts traded on NYMEX (New York Mercantile Exchange).

The market is shifting its focus to a meeting of ministers from the Organisation of the Petroleum Exporting Countries, which is set for Vienna on December 4.

“Low volume holiday trade, largely off on strong dollar and hard sell-off in Chinese equity markets”, Jim Ritterbusch of Chicago-based oil consultancy Ritterbusch & Associates said in a commentary on oil.

Analysts told the FT the large short position was making some market participants nervous due to memories of a similar spike in August, when oil rose by 29% in less than a week.

Crude production slipped by 17,000 bpd to 9.17 million.

A reduction in oil output would likely have consequences for bunker buyers, with oversupply, and the resulting global oil glut, having pushed bunker prices this year down to their lowest in over 10 years.

“The potential increase in geopolitical risk premium has faded a bit as the dispute between Russian Federation and Turkey has not yet escalated or spread to the surrounding countries, affecting oil output”, said Michael Poulsen, oil analyst at Global Risk Management.

West Texas Intermediate (WTI) futures, the United States crude benchmark, fell 71 cents, or 1.65 per cent, to $42.33 per barrel.

Traders were turning their attention to next week’s OPEC output meeting to see if the oil producers’ cartel will slash high output levels.

“The futures forward price curve and many bank forecasts are indicating that there is no relief next year with the Brent price averaging $5 to 7 below this year’s average”, PVM’s David Hufton said in a note, adding the revenue impact of current prices has been “disastrous”.

The Canadian dollar fetched C$1.3308 to the greenback after pulling away from a 2-month low of C$1.3436 struck earlier this week.

By late Friday in London, Brent North Sea crude for delivery in January edged higher to $44.93 a barrel from $44.66 a barrel one week earlier.

Barclays believes that US shale was more reactive to oil price swings and was more capable of “adjusting” its production accordingly. They are up 5.6 per cent so far this week, but have plunged 8.4 per cent since the beginning of the month.