Oil tumbled to lowest level in more than 12 years as crude stockpiles at the delivery point for NY futures expanded to a record.
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The move reverses part of the steep declines in oil that have taken place since the start of the week.
“We do believe that Brent and [West Texas Intermediate] prices will rebound in the second half of 2016 as more aggressive cutbacks in production are forthcoming, particularly in the USA”, said John Davies, head of commodities research at BMI Research.
Lower prices in the manufacturing or agriculture sectors, which resulted from lower oil prices, have contributed to low inflation in major economies, they added.
There seemed to be no sign the OPEC members are cutting their oil output to rebalance the market.
WTI crude prices jumped as much as 13 percent on Friday after a report from the Wall Street Journal suggested OPEC might finally agree to cut production. On the other hand, it has lowered its demand forecast for 2016, it is now likewise set to grow by 1.2 million barrels per day – previously a 1.4 million barrel per day increase had been forecast.
“We view this as further jawboning, with the likelihood of a coordinated response on supply cuts very low”, according to Australia’s ANZ Bank.
“Continuing increases in global oil inventories are expected to keep oil prices under $40 a barrel through August”, said Adam Sieminski, EIA administrator, in a statement. In January OPEC increased production by 280,000 barrels per day to 32.6 million, according to an International Energy Agency report released Tuesday.
Weighing on the general outlook for oil prices is a global demand growth slowdown.
It noted that the Organisation of the Petroleum Exporting Countries (OPEC) was chiefly responsible for the oversupply, adding that Saudi Arabia, Iraq and Iran – which has just seen nuclear-linked sanctions lifted – had “all turned up the taps” in January.
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While prices have been low, volatility has been high since the beginning of the year, with 10-20pc price rises and falls common within only a few trading sessions.
