Oil slumps close to seven-year low on oversupply

Crude oil prices dipped further in Asia on Friday as the supply outlook and a stronger dollar weigh.

Liz Grant, senior account executive at Sucden Financial, said, “It was “about turn” over the session as metals recovered from the weakness seen on Wednesday, and equity markets were in broad retreat in a “reality check” move following the Fed rate hike”.

Developments such as the Energy Information Administration (EIA) report on Wednesday, and the strength in the U.S. dollar, took their toll on commodity futures. The spread has narrowed amid speculation the USA plan to allow domestic oil to be shipped overseas may ease the nation’s oversupply.

As of now, there is no end in sight to the oversupply, as the Organisation of Petroleum Exporting Countries (Opec) failed to agree on slashing output or even a production ceiling at its most recent meeting on Dec 4.

Investors also should consider that Canadian crude blends trade at substantial discounts to the North American benchmark price, West Texas Intermediate, or WTI. In particular, the creation of artificial deficit of raw materials or loosening of the situation in the major oil-producing regions can contribute to a great increase in the oil prices. Prices have dropped 35 percent this year, set for a second annual decrease.

At that time, Iran crude exports are expected to fully return to the market during the first quarter of 2016 if sanctions against Tehran are lifted. S by the Federal Reserve in this week has also affected the oil prices in the middle of a global crude surplus that shows no sign of narrowing.

Baker Hughes said the United States oil rig count increased by 17 in the latest week to 541, after declining for four consecutive weeks. Oil and other commodities priced in dollars become less expensive for holders of other currencies as the greenback depreciates.

Crude oil prices are off roughly 10 percent since OPEC’s last meeting in early December.

While Saudi Arabia managed to halt a decline in its Asian market share last year and remains the region’s top supplier by raising exports by 2.7 per cent in the first 11 months this year to 4.2 million bpd, OPEC data shows that its sales to Asia peaked at 4.59 million bpd in 2013.

Market intelligence company Genscape reported an inventory increase of 1.4 million barrels at the Cushing, Oklahoma delivery hub for WTI futures, traders who saw the data said on Thursday.

Oil prices are now near seven-year-lows with US WTI crude prices are around USD 35 a barrel-below Goldman’s three-month USD 38 a barrel forecast-while Brent crude is now around USD 37 a barrel. The Saudi oil minister announced this spring that they would hold down prices to force high-cost oil production to shut down.

He also said global investment cuts would inevitably lead to a decline in worldwide oil output.