US crude oil prices stabilise but market sentiment remains bearish

After a calamitous start to the year, oil prices have crumbled further this week after the International Energy Agency (IEA) warned that the market could “drown in oversupply”, with the return of Iranian crude after the lifting of Western sanctions offsetting any output cuts from other countries.

Oil futures fell further on Wednesday, with United States crude touching its lowest since 2003, as a global supply glut bumped up against bearish financial news that sparked deeper worries over demand.

Brent for March settlement slipped 88 cents, or 3.1 percent, to $27.88 a barrel on the London-based ICE Futures Europe exchange.

The US Energy Information Administration (EIA) will report official inventory data today.

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For the past week, crude imports averaged 7.8 million barrels a day, down about 409,000 barrels a day compared with the previous week. The International Monetary Fund (IMF) revised their forecast downward Tuesday for global GDP growth for 2016 from 3.6 percent (in its October 2015 World Economic Outlook Report) to 3.4 percent, with emerging and developing economies accounting for much of the lowered outlook. Crude inventories rose by 4.6 million barrels in the week to Jan 15 to 485.2 million, well above analysts’ expectations for an increase of 2.8 million barrels, the industry group said.

“It is not your ordinary day in the foreign exchange market when the Russian Ruble and the Mexican Peso hits record lows while the Hong Kong dollar falls to its weakest level since 1999”, said Kathy Lien, managing director at BK Asset Management in NY.

Under $27 a barrel = The price of US crude as of Wednesday, according to AP. Both grades have lost close to 30% since the beginning of the year.

The price of oil has crashed about 75 percent since mid-2014, hit by an oversupply, overproduction, weak demand and a slowdown in the global economy, especially China.

On Wall Street overnight, an uptick in USA crude oil from 2003 lows helped major indexes pull away from losses of more than 3 percent, but they still finished more than 1 percent lower.

Oil prices succumbed to concerns of a supply overhang on Thursday, erasing modest early gains as analysts said a persistent global surplus of crude would keep pressuring the market.

In the meantime, the IEA expects non-Opec production to decline by 600,000 bpd this year as U.S. shale oil, which has been the driver of growth in non-Opec production, shrinks.

“Sure the China’s economy has slowed down, but it is still growing at a 6.9%, which means its oil demand will not be too shabby”, said Barnabas Gan, a commodity analyst at OCBC. Oil kept cutting through each support level like a hot knife cutting through butter.