adminLONDON – Oil futures rebounded from early losses yesterday but the recovery was muted as the market’s focus switched back to signs of growing oil stocks. Brent and WTI crude were on track for their strongest March since 2002, despite US crude earlier in the day hitting a more than two-week low. Brent crude futures were trading 50 cents higher at $39,76 a barrel at 1400 GMT.The front-month contract for US crude futures was 35 cents higher at $38,67 a barrel, after dropping to $37,57, the lowest since March 16.
Still, high global stocks put the sustainability of the gains in question. Data on Wednesday showed US crude stocks reached yet another record high last week despite an 11-year high in seasonal refinery utilisation.
“The door is open for lower prices,” said Hamza Khan, head of commodity strategy with ING. “There’s a backlog of oversupply that needs to be worked out of the system.”
US crude stockpiles rose by 2,3 million barrels to 534,8 million barrels in the week to March 25, the seventh week at record highs, data from the US government’s Energy Information Administration showed.
Crude prices have risen about 50 percent since mid-February on optimism over a proposal by several major oil-exporting countries to freeze production and signs of falling US output.
Oil analysts in a Reuters poll also raised their average price forecasts for 2016 for the first time in 10 months, but also cautioned the rally could fade near term.
OPEC crude output rose in March to 32,47 million bpd from 32,37 million bpd in February, according to a Reuters survey, while Iran is expected to add another half a million bpd of oil within a year.
Analysts warned of a price fall if the planned April 17 OPEC meeting in Doha to discuss the freeze fell short of expectations.
“There is a clear risk of disappointment and for a temporary setback in prices ahead or immediately after the Doha meeting,” Carsten Fritsch, commodities analyst with Commerzbank told the Reuters Global Oil Forum, adding “we could easily see $35 in Brent”.
The recent rally also allowed US producers to hedge production at higher prices, which could keep some from shutting down.
Harry Tchilinguirian, global head of commodity market strategy with BNP Paribas said the price rise “contained the seeds of its own demise” by allowing US producer hedging.
Still, Fritsch said the oversupply would shrink considerably by the year’s end, between lower production and demand growth that Commerzbank pegged at 1 million on 1,5 million bpd.
In Asia, consultancy BMI Research said in a report the sustained weakness in oil prices has suppressed upstream oil and gas production by “limiting opportunities to stem natural declines in aging assets”. – Reuters.
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