Oil Falls on US Supply Build, Expected Fed Rate Hike

Adding to the bearish global picture, OPEC producers see scant chance of a significant rise in oil prices in 2016 as extra Iranian production could add to the glut and the prospect of voluntary output restraint remains remote.

But U.S. crude prices, which recently fell from $41 to $35 a barrel, rose on Tuesday amid speculation that traders oversold crude in reaction to the Organization of Petroleum Exporting Countries’ decision to remove its longstanding oil-production ceiling. The more-actively traded February contract rose 57 cents, or 1.5%, to $38.73 a barrel.

While giving an Indian perspective on the developments in the crude oil market globally, he aired India’s concerns for an uninterrupted supply of crude and petroleum products from the OPEC countries.

The ratings agency lowered it price assumption for Brent crude oil, the worldwide benchmark, to $43 from $53 per barrel and for West Texas Intermediate crude, the North American benchmark, to $40 from $48 per barrel.

WTI futures for January were $US1.29 a barrel below Brent after earlier shrinking to as little as 20 cents, the smallest discount in a year.

While OPEC “could have done without” a return of US crude, “probably much more impactful will be whatever comes out of Iran, starting sometime in the second quarter”, said David Fyfe, head of market research and analysis at trading house Gunvor Group Ltd. He also said the immediate effect of the ban’s repeal would be “relatively minor”.

US oil futures are down 33% so far this year amid worries over ample domestic supplies. I saw six cycles – I saw very high price, I saw low price, and this is one of them.

Things look a tad brighter on the demand side, with the Paris based International Energy Agency seeing a rise of about 1.8 million barrels in 2015, nearly double the rise in 2014.

“Last night’s inventory data from the USA was clearly unsettling”, said Ric Spooner, chief market analyst at CMC Markets in Sydney.

The global oil market could return to a balance between supply and demand by the end of next year, as long as producers do not raise output from current levels, Russian Energy Minister Alexander Novak said on Tuesday.

If Brent sustain its momentum on Wednesday, it could get nearer to the $40-a-barrel level it fell under last week, Grossman said. Brent has tumbled from a high above $115 in June previous year. Crude typically falls when the US currency strengthens because it becomes more expensive for buyers paying in other currencies.