US oil price gains as traders buy dip

The brutal sell-off in oil continued on Friday, with West Texas Intermediate slumping over 3% to US$35.62 a barrel.

OPEC supply is likely to increase by 1 million bpd next year, Morgan Stanley analysts said in a research note on Monday.

Dec 15 USA crude oil prices fell in early Asian trade, resuming their decline after strong gains on Monday snapped a six-day losing streak, on concerns about a global glut and mild winter demand.

Brent’s session low was $US37.36 – barely a dollar above the $SU36.20 hit during the financial crisis.

“The Opec meeting has removed any last hopes of a reprieve for oil and it has added another layer of downside sentiment to commodities in general”.

Oil prices tumbled to the lowest levels in nearly seven years Monday, dampening European stock markets.

Away from the oil market, most metal futures headed lower during late afternoon trading in Europe. Russia’s top finance official said the nation is planning for prices to sink to $30 a barrel in 2016, spelling more trouble for the major energy producer.

“The economic outlook for 2016 seems uncertain, with the vast majority of respondents [81 per cent] expecting low oil prices to impact the GCC economy”, said Amer Khansaheb, the president of CFA Society Emirates, referring to the results of a survey by the institute of 200 financial analysts in Bahrain, Kuwait and the UAE. Meanwhile, the International Energy Agency has cast doubt over the strength of oil demand in 2016, predicting last week that demand growth will slip back to 1.20m bpd next year.

“Currently, the cheapest crude oil in terms of recovery costs is produced and supplied in Iran’s central regions where production is possible at $1-$1.5 a barrel”, CEO of Iranian Central Oil Fields Company Salbali Karimi said. This agreement means that a fundamental shift of investments towards renewables, energy efficiency (both oil demand bearish).

So let us slow down before making predictions that the prices of oil will be low in the future, as it will serve OPEC countries in general, whereas the other oil producers have more expensive conventional oil. This seasonal weakness is compounding a structural oversupply as producers pump out anywhere between 0.5 million and 2 million barrels of crude every day in excess of demand, helping pull down prices by two-thirds since mid-2014.

But it said it didn’t believe the world would run out of storage capacity. However, Iran’s deputy oil minister Amir Hossein Zamani Nia said there was “absolutely no chance” of his country delaying its oil shipments because of low prices or the supply glut.