USA oil price gains as traders buy dip

The commodities rout continues ahead of an historic Federal Reserve meeting this week. The plunge in oil prices, which has been spurred by excess global supplies, continues to be a drag on inflation, which raises doubts about further action from the Fed. The main driver of oil consumption growth in the past 5 years, is not supporting anymore and this is an additional downtrend supporting justification for speculators to increase their short positions.

Moody’s has lowered its price assumption in 2016 for Brent crude oil, the worldwide benchmark, to $43 from $53 per barrel and for West Texas Intermediate (WTI) crude, the North American benchmark, to $40 from $48 per barrel.

Apart from the unencouraging forecast of the International Energy Agency, the Organization of Petroleum Exporting Countries (OPEC) has stated that despite a diminishing demand for the commodity, oil production would be kept at a record high, reports The Street. Over the past six sessions, prices have shed over 13% apiece.

BMI research said in a report that more downside pressure is expected in the coming months.

On December 8-9, WTI crude oil prices continued to extend losses.

The majority of investors expect USA oil prices to average $55 a barrel in 2016, which would be only slightly higher than this year’s average, according to a survey of more than 200 investors by investment bank Tudor Pickering Holt & Co. Wall Street Journal reported on Monday that Rio Tinto, global iron ore major, is ramping up production despite a global iron ore glut as it feels it has a better chance of making money in this market due to the premium its mines command. The import of China fell for a 13straight month.

“These so-called “petro-dollars” have disappeared as fast as oil exporters’ current account surpluses have melted over the last twelve months – from $500bn in 2013 to less than $50bn this year”. Both indices are in the red year-to-date, on track for their first annual decline since 2008. The oversupply issue is only going to be worsened by Iran, which is gearing up for its highly-anticipated return to global oil markets after years of sanctions had blocked it. The countries in the OPEC cartel could not come up with a production quota that everybody would agree to, and now that the Iranians are allowed to sell their oil in the open market, that will add another half-million barrels to the mix.