Kang said a stronger USA currency if US interest rates are hiked in coming months could weaken demand for dollar-denominated crude oil futures as the contracts will be considered expensive to other currency holders.
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Oil prices broke through a pivotal barrier several times this week, as crude oil briefly sunk below $40.00 per barrel.
Market participants are expecting the latest oil rig count out of the US later Friday. Meanwhile, the spread between the worldwide and US domestic benchmark of crude stood at $2.47, below Wednesday’s level of $3.39 at the close of trading.
With a variety of negative factors heavily weighing down on the oil price forecast, it looks as if things will get worse before they get better.
The EIA (U.S. Energy Information Administration) reported that the Cushing crude oil stocks rose by 1.5 MMbbls (million barrels) to 56.9 MMbbls for the week ending November 13, 2015-compared to the previous week.
December WTI futures, which expire today, added 32 cents to $40.86 a barrel at 1:01 p.m. Friday on the NY Mercantile Exchange. “The volume overhang of 1 million barrels per day of oil production hasn’t gone away, producers are pumping furiously, and there’s a vast inventory of oil in storage that will be released to the market at the first signs of recovery”.
And with markets now anchoring solidly into a below $50 era, African oil boom is fading too. And all this needs to be read in the back drop of the reality that, six of the 10 biggest global oil discoveries in 2013 were made in Africa. Prices will rise next year as supply and demand re-balances, according to Matar al-Neyadi, the energy undersecretary for the United Arab Emirates.
The Organization of the Petroleum Exporting Countries, known as OPEC, failed to produce a consensus on production in a meeting on Tuesday, something which analysts say doesn’t bode well for the possibility of production cuts ahead of their December 4 meeting. At the end of the summer, WTI crude fell below $38 a barrel, tumbling to its lowest level since the height of the Financial Crisis. However, should China allow for significantly faster FX depreciation than is now priced in by markets, we believe oil prices could fall further.
“The well-supplied crude market, record high inventories in OECD and lack of a material threat to the oil facilities in the Middle East from the military escalation against IS in Syria are going to prevent geopolitical premiums building in oil prices”, BMI Research said.
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Longer term, the IEA has predicted that oil prices will reach $80 a barrel by 2020, in line with improved demand and declining output growth.
