hovers near 11-year lows on abundant supply, slowing
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[December 29, 2015]
By Henning Gloystein and Dmitry
LONDON (Reuters) - Oil prices steadied not
far off their 11-year lows on Tuesday, under pressure from slowing
global demand and abundant supplies, with Saudi Arabia signaling no
change to its oil policies and Iran preparing to ramp up exports.
International benchmark Brent and U.S. WTI crude prices edged up
after falling 3 percent on Monday to trade below $37 per barrel as
of 1000 GMT. Brent stood less than a dollar away from its 11-year
low of $35.98 reached last week.
Both crude benchmarks are down by more than two-thirds since prices
started tumbling in June 2014 on the back of a U.S. shale oil boom
and OPEC's kingpin Saudi Arabia decision to pump near record volumes
of oil to stifle higher-cost rival producers.
On Monday, Saudi Arabia announced plans to shrink its record $98
billion state budget deficit with spending cuts, reforms to energy
subsidies and a drive to raise revenues from taxes and
"The budget likely signals no near-term changes to energy or foreign
exchange policies," analysts from Bank of America Merrill Lynch said
in a note.
Saudi Arabia and Iraq have added extra barrels to the market over
the course of 2015 and the world's production has at times exceeded
demand by over 2 million barrels per day this year.
The glut is expected to further aggravate in 2016 as Iran is
pledging to add at least another 0.5 million bpd into the market
when and if Western sanctions on the country are lifted.
"The pre-Christmas rally in crude oil has ground to a halt as the
countdown to the New Year starts. Iran is gearing up to flood the
market with 500,000 bpd within weeks of sanctions being lifted,
while the ceasefire in Libya may also add extra barrels," said Ole
Hansen, the head of commodity strategy at Saxo Bank.
Saudi Arabia and its Gulf allies the UAE and Kuwait have said they
are counting on global demand growth to help rebalance the market
over the course of 2016.
But there are increasing signs that demand might slow much sharper
than expected after a spike in 2015.
"The demand situation does not support a return to a higher price
environment," said derivatives exchange operator CME Group.
Oil analysts JBC Energy said that oil product demand growth in
Europe turned negative in October -- a loss of 170,000 barrels per
day (bpd) year-on-year -- for the first time in 10 months and that
diesel and gasoline demand growth in China, one of the strongest
price supporters of the past year, was also slowing.
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In the short-term, colder weather entering Europe and North America
following an unusually warm start to winter may provide a mid-term
boost to prices.
MDA Weather Forecasts said its 6-10 day forecast showed the
likelihood of colder weather for the U.S. East Coast, a key region
for heating fuel demand.
For Europe, Reuters meteorological data shows that continental
average temperatures are expected to fall from almost 6.5 degrees
Celsius, 4 degrees above the seasonal norm, towards more typical
levels of 2 degrees Celsius by Jan. 1.
One change in oil trading has been that WTI flipped to a premium
versus Brent this month after the United States lifted a decades-old
ban on exporting U.S. crude oil.
Analysts expect this price structure to stay in place, should global
markets suffer from slowing demand and a continuing oil surplus
while domestic supplies in the United States tighten.
"The ongoing low oil-price environment points furiously towards a
rough 2016 for U.S. producers," oil analysis firm ClipperData said,
with some estimates pointing to a 500,000 bpd fall in U.S.
production in 2016.
(Editing by Louise Heavens)
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