Just before the Federal Reserve decision today, energy traders might be distracted on the weekly EIA inventory report. Crude oil stabilized a bit on Tuesday but turned back to the red in the Asian session falling 28 cents to trade at 37.07. Brent oil was flat at 38.59 with the spread tightening to less than 1 ½ dollars. Yesterday oil bounced back from steep losses in the previous session as investors anticipate the US ban on crude exports to be lifted and China topped up its strategic reserve. Tuesday’s gains came during a volatile Monday’s trading which witnessed global benchmark Brent skirt close to 2008 intraday lows. Brent was up 1.74 per cent at 38.63 a barrel while on the New York Mercantile Exchange, West Texas Intermediate was up 1.49 per cent at 36.87 for cargoes loading in January.
WTI has been boosted on the back of a growing belief that the 40-year US oil export ban could be lifted by the end of the year, according to Commerzbank. This will give US oil a bigger market to sell into.
China is continuing to take advantage of low oil prices to fill up its strategic petroleum reserves, according to recent government data, underlining the role the world’s second-largest economy has played in soaking up the 2015 oversupply of crude. Swiss-based analysts Petromatrix, estimates that China has added about 103 million barrels of oil to its reserves this year.
Oil rose 3 per cent yesterday as short-covering and technical support halted its slide to 11-year lows, but traders said the market remained fundamentally weak from oversupply. Brent and United States crude’s West Texas Intermediate rose more than $1 a barrel, up for the second straight day after oil bears failed to push prices below a seven-year trough.
Chicago-based oil consultancy Ritterbusch and Associates, said in a research note that investors would focus on the Federal Reserve announcement during the next two sessions. “We are seeing nothing unusual about this week’s price bounce given the fact that the entire complex had become much oversold based on virtually all of our technical indicators,” they said.
Notwithstanding the global glut, analysts polled by Reuters estimate US crude stockpiles fell by 1.4 million barrels last week.
Open interest in Brent crude call options tied to strike prices from $50 to $80 per barrel has climbed steeply in recent weeks, indicating growing confidence that prices will stage a strong recovery from current levels. Factors supporting a more positive outlook range from higher car sales to heightened security and political risks in some oil producers and debt-laden shale firms on their last legs. Indeed, some banks are now holding a more bullish view on the crude market. Morgan Stanley said that “continued demand growth and less supply mean that the oversupply in oil markets could disappear by year-end of 2016.” The glut is a result of oversupply, yet global gasoline demand has been strong, thanks to rising car sales.
China’s November car sales jumped 20% from a year earlier, putting the world’s biggest automobile market on track for annual sales growth of 5-7%. Almost 25 million new cars will have hit China’s roads in 2015, and by 2020 most analysts expect annual sales of 50 million.
Even European car sales are growing, with Western European markets up 5-10%, according to monthly industry data. US car sales are on track for a 2015 increase of 3% and are expected by the National Automobile Dealers Association to hit a record next year before dipping slightly in 2017. The resulting gasoline demand is expected to spur refiners to produce as much fuel as they can and should bolster 2016 crude demand as long as refining margins remain profitable.
On the supply side, the Organization of the Petroleum Exporting Countries is expected to maintain near record-high output next year, especially if Iran’s sanctions-hit sales fully resume. Outside OPEC, Russian production is also showing no signs of slowing.