Volatility is likely to remain high for near-term oil prices, with the strong USA dollar an additional risk for the market, analysts said. “Oil may plunge to near US$30 (RM128) a barrel”. Because the US Dollar is inversely correlated to the price of US Oil, a resumption of US Dollar strength would presumably send US Oil (and other dollar-denominated assets) a good deal lower toward 2009/2008 lows.
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Crude oil prices hit fresh seven-year lows on Friday as the International Energy Agency warned that global oversupply could worsen in the New Year.
Oil has collapsed by more than 10 percent since the 13-nation Organization of the Petroleum Exporting Countries decided against cutting output despite plunging prices, weak global demand and the stubborn supply glut.
The world’s crude demand growth will slow to 1.2 million bpd in 2016, down from a five-year peak of 1.8 million reached in 2015, as the boost from cheap fuel prices wears off, the IEA added. “But OPEC showed last week it’s a paper tiger in that it won’t do anything to prevent supply growth”, said Michael Hewson, chief market strategist at CMC Markets.
Here are some comments from the IEA’s report: OPEC’s decision to scrap its official production ceiling and keep the taps open is a de facto acknowledgment of current oil market reality.
In recent months, more than 12 oil and gas companies have defaulted according to the credit rating agency Fitch.
Brent crude for delivery in January slipped to $38.97 a barrel this morning before tracking back up to around $39. Last month, OPEC predicted a drop of 130,000 bpd.
The OPEC website published a document, saying that next year Azerbaijan is going to decrease oil production to 40,000 bpd to the average level of 820.000 barrels.
“The latest OPEC meeting, which concluded by essentially saying that it’s every producer for himself, actually presents a silver lining for the oil market”, said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA.
West Texas Intermediate, the USA benchmark price for crude oil, was down about 0.8 percent in NY to start trading at $36.46 per barrel. Analysts expect the first two quarters of 2016 to be tough but the industry looks to later in the year where demand is hoped to increase, making the next six months a time of nervous survival in the industry for key players.
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IEA’s estimates aren’t a big revelation, but makes it harder for oil bulls to claim the market is on the verge of a turnaround, said Todd Garner, managing partner at hedge fund Protec Energy Partners LLC in Boca Raton, Fla.
