Wednesday 01 / May / 2024
London: Oil prices retreated from a two-week high in New York as signs of rising US inventories and weaker Chinese economic growth compounded forecasts that a global surplus will endure for the rest of this year.
April futures slid as much as 2.8 per cent after the March contract expired 6.2 per cent higher on Monday. European equities dropped from a three-week high after Chinese gauges of manufacturing and services fell to new lows.
Oil stockpiles will keep accumulating into 2017 as supply continues to exceed demand, capping any price recovery, the International Energy Agency (IEA) said in its medium-term report on Monday. US inventories probably expanded further from the highest level in more than eight decades, according to a Bloomberg survey before government data on Wednesday.
"In the near term, balances remain bearish," Amrita Sen, chief oil analyst at consultants Energy Aspects, said in a report. "Weak economic growth, slow Chinese demand, strong dollar" have been among the key drivers weighing on prices, she said.
Oil is down about 12 per cent this year on speculation a global glut will persist amid the outlook for increased exports from Iran and brimming US stockpiles. Iran will add more output capacity than any other member of the Organisation of Petroleum Exporting Countries (Opec) over the next six years as it seeks to regain lost market share after the removal of sanctions, the IEA said.
Rising inventories
West Texas Intermediate (WTI) for April delivery lost as much as 94 cents to $32.45 a barrel on the New York Mercantile Exchange and was at $32.67 at 9:45am London time. Total volume traded was about 40 per cent above the 100-day average. The March contract rose $1.84 to $31.48 on Monday, the highest for front-month prices since February 4. WTI lost 30 per cent last year.
Brent for April settlement dropped as much as 94 cents, or 2.7 per cent, to $33.75 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $1.40 to WTI for April.
US inventories probably rose by three million barrels last week, according to the median estimate in a Bloomberg survey. Stockpiles have swelled to more than 500 million barrels, the most since 1930, according to Energy Information Administration data.
‘Seriously plunging’
The Minxin manufacturing index, a private gauge used in China, fell to 37.5 in February from 41.8 in January, while the non-manufacturing gauge fell to 37.5 from 43, according to the China Academy of New Supply-side Economics. Numbers below 50 indicate deteriorating conditions. If confirmed in official data for February that starts to roll out from March 1, weakness in the private gauges would suggest a slowdown in the nation’s old growth drivers may be deepening.
The Stoxx Europe 600 Index lost 0.1 per cent at 9:42am in London.
Prices will reach $80 a barrel by 2020 as global supply growth is "seriously" plunging, the head of the IEA said on Monday. Oil will start to rise at the end of next year as demand overtakes supply, Fatih Birol said during the IHS CERAWeek conference in Houston. While inventories will start declining in 2018, the price rebound would be limited by production from US shale plays, he said.
Opec started a market war against US shale and other high-cost producers, including Canadian oil sands and Brazilian deep-water oil fields, in November 2014 by not reducing output despite a global oversupply. Since then, prices have plunged by more than half and hit a 12-year low this month.
Opec’s strategy showed signs of shifting last week, when the group’s biggest producer Saudi Arabia agreed with non-member Russia to freeze their output at January levels, provided other oil-rich countries joined. Abdalla Salem El-Badri, Opec secretary-general, said on Monday that the new policy will be evaluated in three to four months before deciding whether to take other steps.
"This is the first step to see what we can achieve," he said in Houston. "If this is successful, we will take other steps in the future." He refused to explain what steps Opec could take.
