MW: Oil sees modest bounce after nearing $30 a barrel
Oil futures edged higher Tuesday in a bid to end a six-session losing streak that had knocked more than 15% off the value of both the U.S. and global benchmarks, leaving them near 12-year lows.
Modest short covering helped lift oil, but the tone remained decidedly negative for crude-oil prices.
“The overwhelming supply and demand equation that has encouraged dramatic selling is going nowhere anytime soon, with a persistent aggressive oversupply in the markets consistently haunting investor attraction, while weaker forecasts around global growth weighs on demand, and it is likely that more global economic downgrades from major institutions are to follow early this year,” said Jameel Ahmad, chief market analyst at FXTM, in a note.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLG6, +1.40% rose 22 cents, or 0.7%, to $31.63 a barrel. February Brent crude on London’s ICE Futures exchange LCOG6, +1.77% gained 24 cent, or 0.8%, to $32.12 a barrel.
Nigeria on Tuesday said some member of the Organization of the Petroleum Exporting Countries, or OPEC, are pushing for an emergency meeting over plunging oil prices, but an official from the United Arab Emirates appeared to dismiss the idea.
Previous calls by some OPEC producers for emergency meetings aimed at reining in production have been ignored by Saudi Arabia and its Gulf allies. The Saudis are seen attempting to force out lower-cost producers, such as those in the U.S. shale regions, by keeping downward pressure on oil prices.
“I think the strategy is working,” said UAE oil minister Suhail bin Mohammed al-Mazrouei, at an energy conference in Abu Dhabi.
Meanwhile, rising volatility in the Chinese stock market and confusion surrounding Beijing’s yuan policy last week had heightened fears of a steeper slowdown in the world’s second-largest economy. A rebound by the yuan in recent sessions has helped soothe worries. Global equities were on the rise.
Read: China stocks recover, Asian markets breathe sigh of relief
But uncertainty over China lingers, and could continue to add to negative sentiment on oil futures, analysts said.
Gordon Kwan, the regional head of Nomura oil and gas research, called the situation a “crisis of confidence” in the Chinese economy.
Meanwhile, Iranian oil is expected to return to the market after the sanction on its crude export is lifted this quarter. Iran has said it could export at least 500,000 barrels of oil as soon as the ban is repealed.
“The issue of growing oversupply has been plaguing the industry for more than a year. Although U.S. shale production is slowing, it is still not slowing down fast enough for demand to catch up,” a Singapore-based trader said.
The growing strength of the U.S. dollar is also causing traders to abandon oil bets. Morgan Stanley said Brent oil may fall as low as $20 a barrel on an appreciating dollar—oil prices could decline 10%-15% if the currency gains 5%. Goldman Sachs also expects global oil to head toward $20 a barrel before producers decrease output.
Read: BofA Merrill Lynch cuts 2016 average oil forecast to $45 a barrel
However, the more bullish camp said there is little room for prices to drop further and that a rebalancing in supply and demand is around the corner.
“We remain wary of further downward movement to oil prices, however, continue to remain skeptical over how much lower prices can go,” said Daniel Ang, a Phillip Futures energy analyst.
Meanwhile, February gasoline futures RBG6, +4.24% rose 2.6 cents, or 2.3%, to $1.1390 a gallon.
February natural gas futures NGG16, -3.26% fell 6.66 cents, or 2.98%, to $2.33 per million British thermal units, while February heating oil HOG6, +1.37% gained 1.17 cents, or 1.2%, to $1.0266 a gallon.
