SINGAPORE: Oil prices dipped on Wednesday, weighed down by a strengthening US-dollar and concerns over slowing demand, although falling US production lent crude markets some support.
US crude futures CLc1 were trading at $36.46 per barrel at 0219 GMT, down 4 cents from their last settlement, but still almost 40 percent above February’s 2016 and multi-year low.
International Brent crude futures LCOc1 were at $39.54 per barrel, down 11 cents from their last close, but still some 40 percent above their January lows for this year.
The dips came as the dollar reversed recent losses against a basket of leading currencies overnight, potentially hampering oil demand as imports of dollar-traded crude get more expensive.
But analysts said the main reason for the dip in prices and at least temporary end to the rally was concern over faltering demand in China, where the economy is growing at its slowest pace in a generation.
“The recent oil rally is looking overextended … China’s export data was horrendous,” Matt Smith of Clipper Data said in a daily report.
China’s February trade performance was far worse than economists had expected, with exports tumbling the most in over six years.
Although China imported record crude volumes of 8 million barrels per day (bpd) in February, analysts expect this figure to fall as the government scales back purchases of strategic reserves, and car sales begin to fall as the sharpest economic slowdown in a generation starts to show results.
The price dips at least temporarily halted a price rally that started in mid-February on hopes that a coordinated freeze in production would stop growth in a global supply glut of at least 1 billion bpd above consumption that helped pull prices down as much as 70 percent since 2014.
But OPEC-member Kuwait, this week poured cold water on hopes of such a freeze by stating that it would only cap output if all major producers participate, including Iran, which has balked at the plan.
One key factor in determining the oil market balance will be US output, which the government said would be 8.19 million bpd in 2017, down from over 9 million bpd currently.
But with demand growth also slowing, many analysts including influential bank Goldman Sachs, say that it will take time for markets to fully rebalance.
Energy consultancy Wood Mackenzie said that it expects “the annual average (oil) price for 2016 being lower than 2015 and then recovering in 2017, reflecting large oversupply and high stock levels during the first half of 2016”.
It added that the main risks to its forecast were changes in demand in China and the extent to which Iran manages to increase oil exports after sanctions against it were lifted in January.
Courtesy : TheNews