Crude oil for delivery in February on the New York Mercantile Exchange inched up 30 cents, or 0.8%, to trade at $37.34 a barrel during European morning hours.
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Very little fundamental data comes into account when looking at oil prices except that the global markets are drowning in oil production and inventory.
Oil futures initially rose, tracking Asian stocks, but were later pulled down as data showed China’s national rail freight volumes logging their biggest ever annual decline in 2015, raising questions about how sharply the world’s number two economy was slowing and what this meant for oil demand.
Prices have since eased because “the market is still focused on the over supply issue”, said UOB senior economist Alvin Liew.
The group’s resilience was seen by many as Saudi Arabia’s strategy to wipe out shale producers in the U.S., as they realize a higher cost of production compared to traditional oil producers.
Most market analysts expect a global glut to worsen this year due to soaring production in Saudi Arabia and Russian Federation.
China is the second-largest consumer of crude in the world. The kingdom pumped 10.25 million barrels daily in December, according to data compiled by Bloomberg. ISIS continues to threaten the West, North Korea just tested a hydrogen bomb, and, most important for oil traders, tensions between Saudi Arabia and Iran are rising.
Traders said the gains were driven by a slight increase in Chinese shares that offered hope that Monday’s 7 percent plunge in equities was a flash in the pan.
In the past, the Saudis have encouraged Opec (Organisation of the Petroleum Exporting Countries) to reduce its output targets during periods of low oil prices.
Iran plans to raise output by half a million to 1 million barrels per day (bpd) post lifting of sanctions, although Iranian officials said they did not plan to flood the market with its crude if there was no demand for it.
Adding to this oversupply, Iranian oil exports are widely expected to increase in 2016 as Western sanctions against Tehran for its alleged nuclear weapons program are likely to be lifted. Meanwhile, Iran produced 2.9 million barrels a day that month and is set to ramp up exports sometime this year.
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At around Dollars 37 a barrel, oil prices are still at multi-year lows, after OPEC refused to lower its 30-million-barrel-a-day production ceiling at its production meeting in December.
