Oil prices fall as clouds gather over sup­ply pic­ture

The Pak Banker - - MARKETS/SPORTS -

Oil prices fell for a se­cond day on Tues­day, as con­cerns took hold that a six-week rally may have run its course af­ter OPEC doused hopes for a speedy ero­sion of an over­hang of un­wanted crude.

The Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries said on Mon­day de­mand for its crude would be less than pre­vi­ously thought in 2016 as sup­ply from ri­vals proves more re­silient to low prices, in­creas­ing ex­cess sup­ply in the mar­ket.

To tackle the sur­plus, Saudi Ara­bia and non-OPEC mem­ber Rus­sia, the world's two largest oil ex­porters, along with Qatar and Venezuela have pro­posed ma­jor pro­duc­ers freeze out­put at Jan­uary lev­els.

Even with the pro­posed freeze, con­tin­u­ously high pro­duc­tion means global out­put still ex­ceeds de­mand by at least 1 mil­lion bar­rels per day (bpd).

"We ran into $40 a bar­rel ... the idea OPEC was go­ing to be able to at least freeze pro­duc­tion and was along the right tracks has un­rav­eled a bit," CMC Mar­kets strate­gist Jasper Lawler said.

Brent crude fu­tures LCOc1 were down $1.17 at $38.36 a bar­rel by 0943 GMT, while U.S. crude fu­tures CLc1 were 82 cents lower at $36.36.

While Rus­sian and Saudi pro­duc­tion re­mains sta­ble, an­a­lysts say Iran has tre­bled its out­put to around 3.1 mil­lion bpd, from close to 1 mil­lion bpd in Jan­uary.

Oil de­mand could also slow. Mor­gan Stan­ley said there was a 30 per­cent prob­a­bil­ity of a global re­ces­sion this year.

In spite of un­cer­tainty about whether a pro­duc­tion freeze will oc­cur, and over its ef­fec­tive­ness given con­cerns about the global econ­omy, in­vestors have turned more friendly to­wards oil.

Spec­u­la­tors have added to their bets on a sus­tained rise in crude fu­tures and the ra­tio of bullish bets to bear­ish in the Brent mar­ket has risen to its high­est since last May, con­sul­tancy JBC En­ergy said.

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