China gives signal to OPEC that oil prices have fallen too far

Oil traded near the lowest price since February 2009 as US crude inventories surged and the Federal Reserve raised interest rates for the first time in nearly a decade.

Oil bear Goldman Sachs does not skip a beat, issuing another pessimistic note this morning after the WTI crude fell through $35 a barrel overnight. Brent, the worldwide benchmark, fell $1.10, or 2.9%, to $37.35 a barrel on ICE Futures Europe.

It is threatening to break through a low for Nymex oil of $33.87 and $36.20 for Brent, both set in December 2008. Crude supplies at Cushing, Okla., the delivery point for WTI futures and the nation’s biggest oil-storage hub, rose 607,000 barrels to 60.1 million, the highest since May.

The overwhelmingly bearish sentiment that has pushed Brent from above $115 per barrel last June returned to the fore as fresh evidence emerged that low prices are doing nothing to ease heavy oversupply.

The U.S. imported 8.31 million barrels of a day of oil in the week ended December 11, the most since September 2013, according to the Energy Information Administration.

Market intelligence company Genscape reported an inventory increase of 1.4 million barrels at the Cushing, Oklahoma delivery hub for WTI futures, traders who saw the data said on Thursday.

The strength in the equity markets could also explain the move yesterday, as investors speculated greater returns from the equity markets, following the interest rate hike, as compared to a fundamentally weak crude oil market. This makes oil, which is priced in dollars, more expensive to holders of other currencies.

“As the market generally expects another rate increase in March, oil prices will most likely stay low at least until the first quarter”, said Kang Yoo Jin, a commodities analyst at NH Investment & Securities Co.in Seoul.

The Federal Reserve is scheduled to release its decision on Wednesday at 2 p.m. EST (1900 GMT).

By contrast, the lifting of the USA export ban – which may go to a Congress vote as soon as today – won’t have a “major volumetric impact” for the time being, because US production has declined, Fyfe said. To keep the government going, President Barack Obama is certain to sign the bills, paving the way for crude shipments.

However, the USA central bank’s boss Janet Yellen said she had been surprised by “the further downward movement in oil prices” and expected them to stabilize before edging up.

The expansion by Russian Federation and Iraq in Asia this year has capped increases for Saudi Arabia, suggesting the strategy the OPEC kingpin is leading of pumping more oil to expand market share has only worked within limits.