Oil prices shed gains before Fed move

USA oil prices finished higher for the first time in seven sessions, scoring a rebound from Monday’s lows under $35 a barrel. He also said that a cushion of US$5 to US$8 per barrel had been factored in for cover in the event of an oil price shock.

Oil markets usually see strong demand towards year’s end as the northern hemisphere enters its peak heating demand winter season, yet an unusually mild start to winter, blamed at least in part on the weather phenomenon El Nino, has limited the amount of heating days.

U.S. benchmark West Texas Intermediate for delivery in January rose 69 cents to finish at $36.31 a barrel on the New York Mercantile Exchange. WTI’s financial crisis bottom was $32.40. “Whether it can be maintained is another matter”.

Brent crude, a benchmark for worldwide oils, fell to US$37.92 a barrel in London.

The cartel’s output is accounted for around 40 percent of the global crude output.

Oil prices edged tentatively higher on Tuesday as a slump to near 11-year lows in the previous session triggered investors’ buying appetite, but the crude glut kept gains capped. “It will take time for these large global inventories to unwind, and combined with the possibility of new supply coming online from Iran, we expect oil prices to remain lower for a longer period than previously anticipated”.

Moreover the potential lifting of Iranian sanctions could add significant supply to the market in 2016, offsetting or even exceeding expected declines in USA production, the agency said. Still, Nigeria’s Minister of State for Petroleum Resources Emmanuel Ibe Kachikwu said in Abuja on Monday that OPEC may need “a very urgent meeting” if oil prices aren’t recovering by February.

The rout in prices stems from a huge overhang in crude oil production, with output exceeding demand by 500,000 to 2 million barrels a day.

Tehran is on track to ship 1.26 million barrels a day (bpd) of crude this month, according to an industry source with knowledge of tanker loading schedules.

 “OPEC’s strategy seems to be working”, writes The Atlantic’s Bourree Lam. “Low oil prices have already led to rig closures across America, and it’s expected that high-cost oil-production (the sort that is common in the US) will be the first to be edged out of the market altogether”.