United States crude recovers after falling below $30/bbl

In late afternoon deals, New York’s benchmark West Texas Intermediate (WTI) for February delivery tanked to $30.10 (A$43.09) a barrel, which was the lowest level since December 2, 2003.

Fresh concerns over China’s slowing economy sent oil prices into a steep decline to start off the week.

Brent crude, the global benchmark, was up 28 cents at $31.14 a barrel. Analysts at Morgan Stanley warned on Wednesday that a rise in demand for crude could be lower than previously expected. That means when the dollar gets stronger, oil gets more expensive for overseas buyers.

Upbeat news from the previous week regarding the health of the U.S. economy such as a strong unemployment report and record-high auto sales were discounted by the overwhelming lack of confidence.

Suhail bin Mohammed al-Mazroui, minister of energy in the United Arab Emirates, who hinted that it would take another 18 months for oil prices to start picking up, said: “I’m not convinced Opec alone can change or can exclusively, unilaterally, change this strategy just because we have seen a low in the market”. Next year, the EIA expects US prices to average $47 and Brent to average $50. Other major oil producers and exporters in the Middle East and elsewhere have declined to reduce their own output in an attempt to push prices back up. “We don’t see a quick out”, said Spencer Welch, an oil expert at analysis group IHS.

The growing number of mid-sized independent Chinese refineries, known as teapots, which are eager to capitalize on the still-healthy refining margins would want to import more crude now before prices rebound, analysts said.

Kachikwu also said yesterday that some members of the Organisation of the Petroleum Exporting Countries (OPEC) had requested an emergency meeting, adding that current market conditions support the need to hold such a gathering before the June 2 scheduled meeting of the cartel. “We said 1.2 [million barrels per day] to 1.25 million, and we ended up with 1.5 [million]”, he said.

Many now say oil could drop into the $20 range.

The minister said demand for oil had been higher than expected past year.

Analysts also adjusted to the early price rout in the year, with Barclays, Macquarie, Bank of America Merrill Lynch, Standard Chartered and Societe Generale all cut their 2016 oil price forecasts on Monday.

The contract closed 97 cents lower at US$30.44 on Tuesday after slipping to as low as US$29.93.

Data showing that crude inventories rose 234,000 barrels last week, much less than expectations, was overshadowed by reported builds of 8.4 million barrels in gasoline and over 6 million in distillates, which includes diesel and heating oil.

On the demand side, the Chinese government’s continuing effort to fill its strategic petroleum reserves and local refineries’ thirst for cheap crude will likely keep China’s crude demand robust in 2016, said Mr. Wu.