Brent oil erased most of its early losses to trade steady on Thursday on support from a weak dollar and higher gasoline prices, while US crude slipped on pressure from large inventory builds.
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“We expect [the USA oil benchmark] to continue to work its way down to the late August lows of $37.75 possibly by next week”, said energy-advisory firm Ritterbusch & Associates in a note, citing disappointing economic data from China, Europe and Japan, and reports that tankers carrying crude are backed up in the USA and elsewhere waiting to unload.
In NY trade, United States benchmark West Texas Intermediate for delivery in December was down $1.07 at $40.67 per barrel. The WTI contract for December enters its last two days of trading and traders are already looking toward January.
“To convince me today’s action was more than short-covering, I’d need to see a close above $42 on WTI”, said David Thompson of Powerhouse, a Washington-based energy-focused commodities broker.
The premium, or contango, for second-month WTI versus the front month CLc1-CLc2 hit near seven-month highs, highlighting the better fundamentals for long-dated oil contracts.
It pointed out in a commentary that the global market remains oversupplied, crude inventories in developed countries are at record levels and there is no direct threat to Middle East oil facilities and transit points.
The ongoing robust level of crude oil production is likely to have played its part in this, having fallen only slightly week-on-week and still remaining only just below a three-month high.
API or the American Petroleum Institute, which is an industry organization, said Tuesday that crude stockpiles in the US were lower a week ago by over 482,000 barrels because of a higher run in refineries.
Oil prices were up on Wednesday after data released that the US showed crude inventories were lower than expected.
Traders also seem to be positioning for cheap oil well into next year, with the number of options to sell at $30 a barrel in March 2016 jumping from virtually zero before August to nearly 12,000. As oil is priced in dollars, it becomes more expensive for holders of other currencies as the greenback appreciates. Although the sharp drop in oil prices is a result of oversupply rather than a lack of demand, fears surrounding the health of the global economy are keeping investors on edge, the Agency noted.
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The stockpiling of US crude has been increasingly a concern for the market, which has been obsessing about the amount of oil in storage.
