Oil prices stabilise but market sentiment remains bearish

USA crude tumbled below $28 a barrel in Asia on Wednesday, hitting new 12-year lows, after the International Energy Agency (IEA) warned that the oil market could “drown in oversupply“.

While the International Monetary Fund’s chief economist warned that financial markets seemed to be over reacting to falling oil prices and the risk of a downturn in China, demand concerns compounded an already bearish energy market. He said the price of oil will get worse before getting better, adding that the return of Iran into the mainstream will worsen the situation.

Iran’s National Iranian Oil Company said it had ordered an increase in output of 500,000 barrels per day (bpd). “There is no reason to believe why and how prices will recover by the end of 2017”, Abhishek Deshpande, oil analyst at Natixis, told Reuters Global Oil Forum. The contract settled up 21 cents, or 0.7 percent, in the previous session.

Contributing to the low commodity price is the U.S. Federal Reserve interest rate hike on December 16 that strengthened the dollar against other currencies, creating downward pressure on global crude demand. Republication or redistribution of content provided by EconoTimes is expressly prohibited without the prior written consent of EconoTimes, except for personal and non-commercial use.

There is no sign that USA shale oil producers started to cut production in face of the plunging prices.

While OPEC refuses to trim output, Russian Federation is pumping at record post-Soviet levels and US shale producers proved their resilience against low prices, the glut is expected to remain in the market through at least the first half of 2016.

Brent futures dropped 61 cents to $28.15 a barrel, or 2.1 percent, not far from the 12-year low hit on Monday.

285 million barrels = The estimated additional amount of global inventories that could accumulate if these factors don’t change. “We should see an effect on production”.

“Looking at current prices, oil producers will engineer something to push prices higher”. Brent had fallen to Dollars 27.67 on Tuesday, a low last witnessed on November 25, 2003. US crude futures CLc1 were up 20 cents at $29.62 a barrel, maintaining their unusual premium over Brent.

Whatever the stats reveal, attention remains laser focussed on the oversupply in the market, and tomorrows corresponding weekly inventory figures from the US Energy Department will also be watched closely.