Oil Steadies After Losing Streak, But Oversupply Concerns Persist

Traders said, the low prices heading towards the end of the year were a combination of structural oversupply and seasonal price weakness.

Published: 15th December 2015 09:43 AM  |   Last Updated: 15th December 2015 09:43 AM   |  A+A-


Trucks transporting oil, petrol and gas wait to reload outside a depot in the outskirts of Nairobi September 30, 2008. | File Reuters

TOKYO: Brent crude was steady in Asian trade on Tuesday, as investors took a breather after losses fuelled by concerns about a global glut and mild winter demand that sent prices close to 11-year lows during the previous session.

Brent, the global benchmark, was unchanged at $37.92 by 0247 GMT after rising slightly earlier on Tuesday. The contract settled down 1 cent at $37.92 a barrel on Monday, a seventh day of losses.

The contract on Monday bottomed out at $36.33 a barrel, only a few cents above the $36.20 low last seen during the 2008 financial crisis. Falling below that level would take Brent to the prices not seen since the middle of 2004.

U.S. crude was up 3 cents to $36.34, after falling slightly earlier. On Monday it rose for the first time in seven days, adding 1.94 percent to $36.31, after also briefly flirting with 11-year lows.

Bearish sentiment remains strong, fuelled by an OPEC decision earlier in December to abandon setting a production ceiling for the oil cartel and a likely rise in supplies from Iran after sanctions are lifted following landmark deal on Tehran's nuclear programme.

Traders said that the low prices heading towards the end of the year were a combination of structural oversupply and seasonal price weakness.

"The market is very weak as the weather is very mild with reduced demand for heating oil," said Oystein Berentsen, managing director of crude oil at Strong Petroleum.

Oil markets usually see strong demand towards year's end as the northern hemisphere enters its peak heating demand winter season. Yet an unusually mild start to winter, blamed at least in part on the weather phenomenon El Nino, has limited the amount of heating demand.

In the next two weeks, Japan, South Korea and Russia will see milder than normal temperatures for this time of year while the U.S., Canada and Europe will be "particularly" milder than normal, according to a note from BNP Paribas published Monday.This seasonal weakness is compounding a structural oversupply as producers pump out anywhere between 0.5 million and 2 million barrels of crude every day in excess of demand, helping pull down prices by two-thirds since mid-2014.

"Land storage capacity is now limited but OPEC keeps increasing production so the oil price is relentlessly trending down. Short-term further pressure can be expected and rallies will be sold. Iran may return to the market in January which is causing concern of increasing oversupply amid a mild winter," said Berentsen.

Also looming large for oil market investors is the likely increase in U.S. interest rates after the Federal Reserve meets Tuesday and Wednesday. Crude, priced in U.S. dollars, typically falls as the dollar strengthens since it becomes more expensive for buyers paying in other currencies.


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