Crude Oil Dead At $45

28 Sep 2015 | Author: | No comments yet »

Oil Slides on Concerns About Weaker Global Growth, Oversupply.

While the global oil glut has began to ease after record high U.S. production started to fall, resilient output from other major producers has kept the oversupply at more than 1 million barrels a day in the 93 million barrels a day global market.

Oil prices fell on Monday, paring some of last week’s 2 per cent rally, despite evidence of slowing U.S. production and a fourth weekly increase in U.S. investor holdings of crude futures. Meanwhile, concerns about a slowdown in the China, the world’s second-biggest oil consumer, have soured the prospects for a demand-led recovery. “With global stock levels at all-time highs and a huge ongoing excess of supply over demand now and through 2016 bullish inclinations need to be reined in,” David Hufton of oil brokerage PVM said. High oversupply and concern about demand growth in key areas of consumption such as emerging markets have stripped 50 per cent off the value of a barrel of oil over the last year and kept the price below $50 (U.S.) a barrel for most of the past nine weeks. Most analysts have cut their forecasts for oil this year and next, but there is a feeling that the current downturn in prices may have run its course, even with the misgivings about the outlook for demand next year. “We’ve been discussing the possibility that oil needs to move down to $30, but I think that is only if you run out of storage capacity and given that (there is) still quite substantial storage capacity, in my view you still have flexibility,” said Bjarne Schieldrop, chief commodity analyst at SEB. “Increasing stocks will increase the need for a higher contango,” he said, adding: “If you look on the forward curve, buyers are increasingly (present) at the front end of the curve after having been burned heavily by … longer-dated contracts.” The contango, or premium, at which longer-dated contracts trade above prompt Brent futures hit its highest since the start of the year earlier this month at $8 a barrel, but has since contracted to below $7. “The growth problem endures. Later in the day, the International Monetary Fund will publish its new macroeconomic outlook and expectations are that the fund will cut its forecast for global economic growth.

Monday’s price falls came despite an ongoing reduction in U.S. drilling, which has been on the decline for four straight weeks, a sign continued weak prices were causing oil and gas producers to reduce drilling plans. Oil prices have fluctuated in line with wider markets, as fears over the strength of China’s economy, particularly after the country’s central bank devalued the yuan in August, unnerved global investors. “The atmosphere is febrile and oil is caught up in the mix driven by oil fundamentals one minute and macroeconomic fundamentals the next,” Mr. There will be “laser focus” on U.S. oil-production data, and any signs that output has shrunk, even retrospectively for previous months under the EIA’s new methodology, could provide a boost to both WTI and Brent crude prices, Adam Longson, head of energy research at Morgan Stanley, MS 0.69 % said.

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