Oil prices drop towards 11-year lows on worsening glut

Moody’s worldwide rating agency sharply reduced its oil price assumptions in light of continuing oversupply in the global oil markets. A USA asset management company decided last week to freeze withdrawals from a mutual fund that invests in such bonds, souring market sentiment. It is the highest output in over three years and 1.7 million barrels per day over its former production limit.

Oil prices retreated in Asian trading hours today following fresh indications of growing oversupply ahead of the US Federal Reserve’s long-awaited decision on interest rates.

Iran has promised to ramp up supply once nuclear-related sanctions are lifted on its crude exports. This report also showed lower refinery inputs, meaning lower demand for crude oil.

Despite oil prices falling from a high of $114/Bbl 18 months ago, OPEC refuses to cut production, preferring to hold or even increase market share and drive out rivals, specifically US shale oil producers, who have higher production costs.

Oil recovered a bit Monday from a series of declines that drove prices to near seven-year lows as investors anxious about copious global supplies. The recent plunges in oil prices have narrowed the price difference between the two benchmarks to around $1.20 from more than $10 a barrel earlier this year.

OPEC Secretary General, Abdullah al-Badri, said on Tuesday current low oil prices would not continue and may rise in a few months or a year.

The credit agency said continued high levels of production by global oil producers were significantly exceeding growth in oil consumption, predicting the supply-demand equilibrium will only be reached by the end of the decade at around $63 per barrel for Brent. The rebound for crude-oil prices comes despite concerns that a climate deal in Paris may hurt long-term oil demand.

Brent was up 40 cents, or 1%, at $38.32 a barrel by 3.55pm GMT.

“In addition to volumes released from storage, Iran will be able to increase crude oil and condensates exports by a maximum of 700,000 b/d by end-2016”, BMI Research said in a note seen by Reuters.

Bloomberg News The silhouette of pumpjacks is seen on the site of an oil well outside Williston, North Dakota, U.S., on Wednesday, Feb. 11, 2015.