Oil extends losing streak as oversupply concerns persist

SINGAPORE – Oil prices dipped on Tuesday, with Brent set to extend its losing streak to an eighth day, as investors remain concerned about a global glut and mild winter demand that sent prices close to 11-year lows during the previous session.

Oil’s problem has hinged on oversupply, a situation that would be exacerbated when Iran is once again allowed to start selling oil to the world, after the United Nations lifts sanctions, sometime in 2016, that have banished the country from selling oil due to its nuclear activities.

Oil slumped last week to levels last seen during the global financial crisis, while speculators increased bets on falling USA crude prices to an all-time high after the Organisation of Petroleum Exporting Countries effectively abandoned production limits. The European benchmark crude was at a premium of US$2.15 to WTI. Just look back at the carnage wrought by crude’s plunge from $100 per barrel to commodity companies and oil export dependant economies and you know how much more damage can be caused by crude’s continued fall.

WTI for January delivery climbed 78 cents, or 2.2 percent, to $36.40 a barrel at 12:24 p.m. on the New York Mercantile Exchange.

West Texas Intermediate crude in Oklahoma narrowed to $1.61 a barrel below Brent oil in Europe Monday, from as wide as $27.88 a barrel in 2011.

The oil market remains globally oversupplied, with producers in the U.S., Saudi Arabia and elsewhere continuing to pump at full tilt.

More importantly, the drastic decline in crude prices has given China a good opportunity to greatly increase crude imports for strategic reserve goal.

“These so-called “petro-dollars” have disappeared as fast as oil exporters’ current account surpluses have melted over the last twelve months – from $500bn in 2013 to less than $50bn this year”. US crude rose 69 cents, or 1.94 percent, to $36.31.

The decrease in the growth of global demand, however, has not been met with a decrease in supply. I also expect that we will break down well below that as oil markets are essentially in a bit of a freefall at the moment. I think that anytime this market rallies, it’s just simply going to be an opportunity to sell at higher levels.

Risk consultancy Control Risks said in its RiskMap 2016 outlook that “the security and political risk outlook is worse than at any point in the past decade”, citing a mix of terrorism threats, political instability and economic uncertainty. “The oversupply is about 1.5 percent of a 95 million bpd market with limited spare capacity in a risky political setting for weak petro states prone to disruption”, Citibank said.