Oil pulls back, WTI flirts with sub $40

USA benchmark West Texas Intermediate for December delivery ended down 21 cents to $40.54 a barrel on the NY Mercantile Exchange after earlier briefly dropping below $40 a barrel.

The sharp decline in oil sector investment, which is predicted by the global Energy Agency (IEA), will be result of the problems regarding storage of excess oil, aimed at avoiding a complete collapse in oil prices, expert Sam Barden believes. This “would likely be the trigger for adjustments through the physical market, pushing oil prices down to cash costs, which we estimate are likely around $20 (13 pounds) per barrel”, the bank added.

Official inventory data from the USA government’s Energy Information Administration is due on Wednesday.

Copper prices have fallen to their lowest in more than six years in a sell-off triggered by the attacks in Paris, a stronger dollar and poor demand prospects in top consumer China.

Since then, prices have been trading in a narrow range with small moves both upward and downward as traders weighed the geo-political risk of output halts with the over-supply situation.

WTI’s weakness has been also demonstrated by the growing discount between the front month to forward contracts as traders stored more crude in the hope of delivering at higher prices later.

Several analysts wondered whether the US$40 resistance level would hold much longer.

Big oil suppliers have started requiring prepayment when selling crude and refined products to Venezuela’s PDVSA, a bid to curb potential risks from the state-run company’s cashflow woes, sources involved in the deals told Reuters.

Worldwide crude oil prices plunged to fresh lows with the price of the Organisation of Petroleum Exporting Countries (OPEC) basket of twelve crudes going below the $40 a barrel level for the first time in 11 years.

US production last week totaled 9.182 million barrels a day, slightly lower than the 9.185 million in the week earlier.

Prices have fallen steadily since November 5, mostly driven by signs that major producers were not cutting back, and by mounting stockpiles especially in the United States, in part due to the persistently mild fall weather. Iran is pushing to regain oil sales lost to sanctions after agreeing in July to accept limits on its nuclear work in return for market access.

Crude oil prices at the outset went under pressure following yesterday’s EIA’s inventory data.

Another rise in the dollar also crimped trade as it hit buyers using other currencies.