The uncertainty is making companies think twice before sinking money into new oil projects. More weakening in the yuan would render dollar-denominated oil even more expensive and deal yet another blow to demand.
Advertisement
According to Burns, because of new technology the Permian Basin has almost doubled its production in the last nine years but the demand is just not there. Intermediate producers losing more than 10 per cent of value on Tuesday included Lightstream, Bonavista and Baytex. Prices pulled back slightly at the end of trade to end 97 cents lower at 30.44 dollars a barrel.
“We remain wary of further downward movement to oil prices, however, [we] continue to remain skeptical over how much lower prices can go”, said Daniel Ang, a Phillip Futures energy analyst.
Previously, China set a ceiling for domestic retail fuel prices, which will not be raised if worldwide oil prices rise above 130 USA dollars per barrel.
The CBOE Crude Oil Volatility Index, a gauge of anticipated swings in USA crude prices, rose Tuesday to the highest since 2009. “That is likely to be a very low price”, the firm said.
“A bit of relief here that the Chinese export engine has not entirely started to throttle back – but if you look at leading indicators, they actually suggest that new exports orders are continue to contract (and) those orders placed with Chinese companies continue to weaken”, Neumann told AFP.
The Energy Information Administration, in its monthly short-term energy outlook, cut its 2016 forecast for USA oil prices to $38.54 a barrel, down from its prior forecast of $50.89 a barrel.
Crude futures plummeted 10 percent last week, also on fears about the global supply glut and demand weakness in China, the world’s biggest energy user. The European benchmark crude closed at a 42 cent premium to WTI. That could divert Iraqi oil to the U.S. Gulf Coast where it would compete with Canadian oil. Concerns that China’s economic growth may slow have soured investors on the prospects for a quick recovery, turning hedge funds the least bullish in five years. Oil futures have fallen
70 percent since June 2014 as supply has been far outpacing demand.
Poorer members of the Organization of the Petroleum Exporting Countries have been clamouring for the cartel to cut high production levels in a bid to drive prices higher. In the early part of last year, the US’ rig count was down 850 from the year before, while about 17,000 oil and gas workers in the U.S. lost their jobs in 2015.
“Just to be clear, this is not the rebalancing year, it’s next year”, Wittner said.
China said it more than doubled the size of its strategic crude oil reserves between November 2014 and the middle of a year ago, building inventories at a rate exceeding analyst estimates of the country’s stockbuilding.
OPEC’s strategy of maintaining production levels, instead of reducing supply to allow prices to recover, has been aimed at defending market share at the expense of higher-cost producers such as those in the US shale sector.
Advertisement
“People are freaking out right now because prices touched $30 yesterday”, he said.
