The drop in prices is not surprising after the rally the previous session as the market girds itself for the decision on rates and official figures on inventory levels in the USA, said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
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Oil fell as much as 5 percent on Wednesday after U.S. government data showed a big, surprise build in crude inventories and the Federal Reserve hiked interest rates, a move that should support the dollar and pressure commodities prices.
That would require West Texas Intermediate crude, the American benchmark, to slump “to the high US$20s” from about US$37 now, the bank said.
“Given that prompt WTI-Brent spreads are trading in a narrow range and USA production is falling due to lower spending, the [policy] shift is likely to have limited impact on prices beyond initial knee-jerk reaction”, Chauhan said.
“We still see high risks that prices may decline further, as storage continues to fill”, Damien Courvalin, an analyst in NY, said in the report.
Oil futures have fallen sharply this month after the Organization of the Petroleum Exporting Countries failed to agree on output targets to reduce a glut of oversupply on global energy markets.
Brent crude oil futures settled over percent lower at $37.19 a barrel after hitting $37.11 a barrel, near an 11-year-low. Brent sank to $36.75, a level not seen since the depths of the 2008 global financial crisis.
Inventories at Cushing, Oklahoma, the delivery point for the US contract added 0.6 million barrels to 60.06 million barrels.
Despite underperformance, the oil and gas sector has life in it, according to the sell-side firm.
Prices are probably low enough to choke off investment in supplies and tame the current surplus by the end of 2016, Goldman Sachs said in a report today.
Most analysts, however, don’t expect oil prices to regain the $100 mark until 2017 or later, arguing that producers will continue to pump out more crude than is being consumed. The company takes into account OPEC’s production increases, which can come following the removal of sanctions on Iran and its access to the global markets.
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India’s oil demand, approaching 4 million barrels per day (bpd), is also soaring as its economy grows at more than 7 percent a year and hundreds of thousands buy their first vehicle. “Everyone was looking at 11-year lows, but I think people got a sense of “bids” when they tried probing there”, Jarvis said.
