MW: Oil prices show slight recovery after Brent hits lowest since 2004
The oil market recovered slightly on Tuesday after a volatile start to the week when global benchmark Brent touched lows not seen since 2004 and West Texas Intermediate sank below $34 a barrel for the first time since 2009.
Brent crude LCOG6, +0.17% was up 0.5% at $36.53 a barrel on London’s ICE Futures Europe while WTI CLG6, +0.59% was up 0.73% at $36.07 for February deliveries. Brent closed on Monday at $36.35, the lowest end of day figure since July 5, 2004.
Analysts have cited Wednesday’s WTI contract rollover into February as a significant factor for the positive start to Tuesday’s session, with traders and money managers preparing for the Western Hemisphere’s harsher winter months.
Another boost for WTI has been the decision by the U.S. government to lift its 40-year export ban for crude oil. Exactly how much U.S. exports will affect the global market isn’t known, but it has pushed WTI to within 46 cents a barrel of Brent.
This price differential means exports are likely to be uneconomic and exactly how much crude would be available is difficult to forecast until the full extent of falling U.S. production is known.
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“Independent refiners [in the U.S.] without production capability have long lobbied against this decision due to concerns over the impact on their refining feedstock costs,” the London-based shipbrokers Howe Robinson said.
Refineries in China, meanwhile, have been a key driver of global crude oil demand topping 1.8 million barrels a day in 2015 and this is reflected in rising exports of refined products, or distillates, to other countries in Asia.
According to Chinese Customs data, net distillate exports were 0.54 million barrels a day in November. About 93,000 barrels a day of that was fuel oil, only the third time on record that the product has been exported.
Chinese independent refineries, known as teapots, are driving growth due to the increase of licenses allowing them to both import crude oil and export distillates. Many are now running at 80% utilization rather than the usual 30%-40%, according to London-based research consultancy Energy Aspects.
“Once again, despite slowing end-user demand, China will be the primary source of crude demand in 2016,” it said.
Also Tuesday, Russia’s Kommersant daily newspaper has published comments by Russia’s Energy Minister Alexander Novak who said domestic oil production could fall in 2017 if Moscowc continues its punitive taxation on the industry.
Russia imposes a 42% tax on oil exports and recently reversed a decision to cut the levy to 36%. The country’s oil production averaged over 10 million barrels a day in 2015 as it competed with other large producers such as Saudi Arabia for market share.
