Oil prices reversed early losses on Thursday as the Organization of the Petroleum Exporting Countries said it sees slightly stronger global demand for crude this year, bolstered by the weaker price environment.
Brent, the global price benchmark, has fallen by more than half since a peak in June, as fears of oversupply of crude coupled with tepid demand engulfed the market.
February-dated Brent crude rose about 1% to above $49 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, WTI futures traded up 1.7% to $49.30 a barrel. Both benchmarks had fallen to $47 earlier in the day.
In its monthly oil market report released on Thursday, the Organization of the Petroleum Exporting Countries lowered its forecast for the increase in non-OPEC oil supply this year, highlighting indications that lower prices are already affecting investment in the sector.
For the U.S., where oil production has soared in recent years, the producer group has slashed 100,000 barrels a day from its forecast production increase this year.
Meanwhile, the oil cartel said it sees slightly stronger global demand this year, bolstered by the lower oil prices.
The price rout was exacerbated in November when OPEC decided to maintain market share, rather than act to curtail output and support the market as it had done in the past.
Analysts, however, cautioned that the fundamentals on the oil market haven’t changed significantly—a view underlined by data out of the U.S. signaling increased domestic oil supplies.
U.S. crude-oil and petroleum-product supplies are at 1.16 billion barrels, a record high in weekly data going back to 1990, according to inventory data released Wednesday.
The amount of U.S. crude stockpile released suggests a continuing oversupply issue, Phillip Futures wrote in a note, adding that low oil prices don’t seem to have a hold on U.S. crude production.
On Thursday, the investment bank Jefferies slashed its average Brent price forecast for this year to $50.25 a barrel from $72.25 a barrel.
"We are again lowering our oil price forecast to reflect what will likely be an oversupplied market through at least the first half of 2015,” said Jason Gammel, analyst at Jefferies. "Until the oversupply is corrected, prices will be biased to the downside.”
Bank of America Merrill Lynch also lowered its price estimates and now sees Brent crude falling to as low as $31 a barrel and WTI to $32 by the end of the first quarter of 2015 as global petroleum inventories continue to fill up.
On Thursday, WTI crude, the U.S. oil benchmark, traded with a premium over Brent—a rare occurrence in recent years—as plentiful storage capacity in the U.S. makes WTI more attractive to investors.
Nymex reformulated gasoline blendstock for February—the benchmark gasoline contract—fell 1% to $1.3380 a gallon, while ICE gas oil for January changed hands at $476 a metric ton, up $18 from Wednesday’s settlement.
(WSJ)
