Oil prices edged tentatively higher yesterday as a slump to near 11-year lows in the previous session triggered investors’ buying appetite, but the crude glut kept gains capped.
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The dollar slipped to a seven-week low against a basket of currencies, incentivising the purchase of dollar-denominated oil contracts.
The US central bank’s Federal Open Market Committee (FOMC) is scheduled to make an announcement at 1900 GMT (12:30 a.m.in India), delivering its first rate hike in nearly a decade. Morgan Stanley said that “continued demand growth and less supply mean that the oversupply in oil markets could disappear by year-end of 2016”.
Futures were little changed in NY after losing 4.9 percent Wednesday.
That came a day after the U.S. Energy Information Administration (EIA) said crude stockpiles across the United States rose by 4.8 million barrels last week, compared with analysts expectations for a draw. Analysts had estimated that the statistical arm of the Department of Energy would report a draw of 600,000 barrels during the week.
“This data is decidedly bearish as crude stocks now sit at record levels for this time of year and just off the all-time high of 490.9 million barrels”, said Chris Jarvis, president and senior analyst at Caprock Risk Management in Maryland. For now, the build-up of inventories continues, because even though USA production is starting to decrease, with rig counts falling by 65 per cent in a year, there are no signs of Opec’s production declining.
The Organisation of the Petroleum Exporting Countries’ refusal in early December to resort to production caps accelerated the fall in the past two weeks.
Moreover, the strength in the U.S. dollar following the FOMC ‘s interest rate hike decision added to that weakness.
In addition, say some OPEC sources, an anticipated US interest rate rise this week could push prices further down, even if only for a short period of time.
Another potential source of supply for global markets would be USA crude should lawmakers vote to lift a ban on exports as early as Friday.
By contrast, the lifting of the USA export ban – which may go to a Congress vote as soon as today – won’t have a “major volumetric impact” for the time being, because US production has declined, Fyfe said.
Global oil prices have now fallen to their lowest point since February 2009 as prices loom below $36, according to global benchmark Brent which calculates prices at $36.68 a barrel.
Meanwhile, the wide consensus that USA shale oil production has survived much better than many initially predicted after costs were dramatically cut.
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Long term technical and fundamental outlook for both Brent and WTI Crude Oil is due South. “We’ve been moving on sentiment, which is negative”.
