Crude prices stabilised on Tuesday along with Asian stock markets, following heavy losses late in the previous session, although weak market fundamentals with production levels persistently above demand kept a lid on gains.
Brent crude was trading at $37.21 a barrel, mostly unchanged from its previous close, while US West Texas Intermediate (WTI) crude futures edged up 10 cents to $36.86 per barrel. But both benchmarks were more than a dollar below highs reached in the previous session.
Trading on Monday was volatile. Prices first hit a three-week top as relations between Saudi Arabia and Iran soured after Riyadh’s execution of a prominent Shi’ite Muslim cleric, and then closed down on weak Asian and US manufacturing data that indicated a gloomy oil demand outlook.
Steady prices on Tuesday tracks a slight increase in Chinese shares, which offers hope that Monday’s 7 per cent plunge in equities was a flash in the pan, traders said.
None of this, however, changes the fact that the supply-demand landscape for oil remains weak, dominated by an unwillingness of producers to cut output that has led to a surplus of hundreds of thousands of barrels of crude every day.
In fact, ANZ said the tensions between Saudi Arabia and Iran “will further aggravate the oversupply situation in 2016”.
It will “reduce the likelihood of any collaboration between the two oil majors regarding oil output as Iran re-enters the international market once sanctions are lifted”, the bank said.
According to a Reuters poll, Brent and WTI, currently trading two-thirds below their mid-2014 highs, are likely to average around $50 this year as rising supply meets subdued demand.
Latest data from China, the world’s second biggest oil importer, paints a weak demand picture. The country’s national rail freight volumes declined by a tenth in 2015, their biggest ever annual decline, raising new questions about how sharply the world’s second largest economy is really slowing.
On the supply side, inventories are already near record levels in United States, the world’s top economy.
Industry group American Petroleum Institute will release storage data later on Tuesday.
With brimming US inventories and tensions in the Middle East, WTI crude could once again flip to a premium versus Brent , analysts said.
"As US crude oil is starting to be exported, we would think that the further widening of spreads into positive region (of WTI over Brent) will come in the coming weeks," brokerage Phillip Futures said.
Congress lifted a four-decade old ban on US crude exports in December and several companies have announced they will soon export cargoes.
Reuters
