Brent oil eases

Fo­cus re­turns to global over­sup­ply

Kuwait Times - - BUSINESS -

LON­DON: Oil prices eased yes­ter­day, re­vers­ing the pre­vi­ous day’s gains, as the risk pre­mium stem­ming from the Paris at­tacks faded, and the fo­cus re­turned to the global over­sup­ply in crude and petroleum prod­ucts. An­a­lysts said that de­spite the Paris at­tacks and French re­tal­i­a­tion against Is­lamic State (IS) in Syria, prices would re­main low for the rest of the year and into 2016 as oil mar­kets stay over­sup­plied. Pro­duc­tion in 2015 will out­pace de­mand by 700,000 to 2.5 mil­lion bar­rels per day, ac­cord­ing to es­ti­mates. “To­day, it’s back to the draw­ing board. The mar­ket is still over­sup­plied and yes­ter­day was an ad­just­ing of po­si­tions af­ter th­ese dread­ful events,” PVM Oil As­so­ciates an­a­lyst Tamas Varga said.

“Un­less the geopo­lit­i­cal ten­sions, which have ob­vi­ously risen since Fri­day, are go­ing to be man­i­fested in phys­i­cal sup­ply de­struc­tion in the Mid­dle East, I think sen­ti­ment should re­main more bear­ish than bullish.” Brent crude fu­tures were down 13 cents at $44.43 a bar­rel by 1122 GMT, hav­ing closed up 2 per­cent on Mon­day. Front-month US crude fu­tures were down 34 cents at $41.40 a bar­rel. The pre­mium of Brent fu­tures over their US equiv­a­lent nar­rowed to around $1.94 a bar­rel, from closer to $4 at the start of the month. Many spec­u­la­tors are preparing for fur­ther price falls.

Most open in­ter­est in op­tions ex­pir­ing in De­cem­ber is clus­tered around put op­tions - which give the holder the right, but not the obli­ga­tion, to sell Brent fu­tures - at $40 a bar­rel. “The well-sup­plied crude mar­ket, record-high in­ven­to­ries in OECD (coun­tries that are part of the Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment) and lack of a ma­te­rial threat to the oil fa­cil­i­ties in the Mid­dle East from the mil­i­tary es­ca­la­tion against IS in Syria are go­ing to pre­vent geopo­lit­i­cal pre­mi­ums build­ing in oil prices,” BMI Re­search said.

Lower for longer

Money man­agers cut their net long US crude fu­tures and op­tions po­si­tions to the low­est in three months dur­ing the week to Nov 10, the US Com­mod­ity Fu­tures Trad­ing Com­mis­sion (CFTC) said on Mon­day. The spec­u­la­tor group cut its com­bined fu­tures and op­tions po­si­tion in New York and Lon­don by 27,456 con­tracts to 127,351 dur­ing the pe­riod. US crude oil prices have now been lower than $50 per bar­rel for longer than they were dur­ing the height of the global credit crunch in late 2008/2009, and the for­ward curve also shows less price in­crease to­day than it did then. “It re­flects the ‘lower for longer’ the­sis and ex­pec­ta­tion that it is likely to be a slower re­bal­anc­ing process than ini­tially an­tic­i­pated,” said Virendra Chauhan, oil an­a­lyst at En­ergy As­pects in Sin­ga­pore. — Reuters

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