Oil heads for third straight weekly loss as supply weighs

Globally, West Texas Intermediate (WTI) crude oil for January delivery was down six cents at $35.46 a barrel, while Brent crude for February, a new contract, was down 15 cents at $37.24 per barrel on the New York Mercantile Exchange. S crude stockpiles scaled up 4.8 million barrels in the previous week.

The Federal Reserve interest rate hike Wednesday took nobody by surprise.

But he added that the persistent glut is the primary and underlying reason for the prolonged weakness in oil prices, coupled with softening demand, especially from China, which is grappling with its own economic slowdown.

“The oversupply on the oil market is weighing heavily on prices”, said Commerzbank analyst Eugen Weinberg.

Moody’s said it expects both prices to rise 5 per barrel in 2017 and 2018 according to the report “Oil and Natural Gas Industry – Global: Threat of Prolonged Oversupply Drives Prices Lower”.

OPEC said in its latest monthly report that the supply of oil from countries outside of the cartel will contract next year.

The ratings agency said the battle to reach the bottom of oil prices continues to be driven by Saudi Arabia which is believed to have among the lowest costs of production in the world. Higher U.S. interest rates usually strengthen the dollar, making dollar-denominated commodity prices, including crude oil, more expensive for foreign purchasers.

“Prices are falling on continued bearish sentiment and maybe WTI has fallen on the conviction that it was priced too high against Brent”, said Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt.

When it became known in the week before the OPEC meeting was due on December 4 that the Saudis had started to sell oil in Russian Federation dominated markets such as Sweden and the Baltic countries for the first time in 20 years all bets were off. ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil ETF (UCO) followed the price trajectory of WTI crude oil prices in yesterday’s trade.

Oil stocks fell. The majors like Shell and BP have seen their shares prices decline by between 20 and 40% in the past year, while small caps have seen losses of 80%. The shipments aren’t profitable with current regional price differences and freight rates, according to a survey Wednesday of three buyers and producers.

OPEC – whose members together pump out more than one third of world oil – is now producing an estimated 32 million barrels per day, above the group’s prior 30 million barrel target. Assuming the bill is passed (and subsequently clears the Senate and is signed by the President), the removal of the ban on oil exports could permanently diminish the spread between Brent and WTI, smoothing out regional differences in oil supply and demand.