Oil prices diverge on bleak outlook

GMT 13:39 2016 Wednesday ,20 January

Arab Today, arab today Oil prices diverge on bleak outlook

Oil prices diverged Tuesday as markets
London - AFP

 Oil prices diverged Tuesday as markets reacted to mixed sentiment over the outlook for China and the wider global economy.
Brent futures rallied but remained below $30 a barrel, as the International Monetary Fund said that the recent sharp collapse in the price of oil was dragging down the global economy.
The International Energy Agency meanwhile said that crude futures were set to fall further this year as supply vastly exceeds demand, with major oil exporter Iran's return to the market offsetting any production cuts from other countries.
Despite the bleak series of announcements, Brent oil prices made sizeable gains "in the wake of better than expected Chinese economic data", said Commerzbank (Xetra: CBK100 - news) analyst Carsten Fritsch.
"Clearly some market participants had feared worse."
GDP in China, the world's biggest energy consumer, grew at its slowest in a quarter of a century last year, creating pressure for more stimulus policies to ensure a soft landing for the economy that is a crucial driver of global growth.
The 6.9 percent figure was the slowest in the People's Republic since the 3.8 percent of 1990, a year after the bloody Tiananmen Square crackdown rocked the country and isolated it internationally.
But while the outcome is much smaller than the double-digit rates seen before the financial crisis, it is seen as the "new normal" and within Beijing's target range as it looks to recalibrate the economy to a more sustainable model.
-- Brent rallies --
At about 1730 GMT in London, Brent North Sea crude for delivery in March was up 74 cents, or 2.6 percent, to $29.29 compared with Monday's close.
US benchmark West Texas Intermediate (WTI) for February slid 33 cents, or 1.1 percent, to $29.09.
On Monday, Brent plumbed below $28 for the first time since November 2003.
"Can it go any lower?" the International Energy Agency asked in its monthly oil market report published Tuesday.
"Unless something changes, the oil market could drown in over-supply. So the answer to our question is an emphatic yes. It (Other OTC: ITGL - news) could go lower."
The situation is not set to be helped by Iran ordering a boost to crude production after the West lifted sanctions, exacerbating an already oversupplied global market.
Prices sank to depths not seen since 2003 on Monday, a day after the United States and Europe lifted the crippling economic sanctions in exchange for Tehran's compliance with a deal to curb the country's nuclear ambitions.
Iran immediately announced a major boost in oil production, with the National Iranian Oil Company saying it had ordered output to increase by 500,000 barrels per day.
Iran currently produces 2.8 million barrels per day and exports just over one million barrels.
"The re-entry of Iran... is expected to further add to the supply glut," said EY analyst Sanjeev Gupta.
"Pending any major disruption in supply, the increase in exports from Iran will restrict any major gains to the price of crude in the near-term," he told AFP.
However, analysts said that the return to the market of Iranian oil will be gradual owing to certain constraints.
"Before large volume exports can begin, Iran will have to set up new oil sales contracts above those already in place," BMI Research said in a market commentary.
It said Europe is expected to be the initial target for Iranian oil exports but noted that Iran "will have to offer incentives and ensure sufficient transparency in its domestic banking sector to lure back European buyers".
"As such we expect a more gradual return of oil to markets, not an immediate flood of oil," it added.
Iran could also encounter difficulties because some of its oil infrastructure may need repair and replacement, while it may take time for its idle oilfields to be ramped up to full production, it said.
WTI is currently down 20 percent from its value from the start of 2016 after dropping by 30 percent last year.
Brent is down 22 percent from the start of the year, in addition to the almost 35-percent plunge it suffered in 2015.


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