Oil prices slip as demand outlook eclipses supply falls

[September 28, 2015]  By Amanda Cooper

LONDON (Reuters) - Oil prices fell on Monday, paring some of last week's 2 percent rally, despite evidence of slowing U.S. production and a fourth weekly increase in U.S. investor holdings of crude futures.

High oversupply and concern about demand growth in key areas of consumption such as emerging markets have stripped 50 percent off the value of a barrel of oil over the last year and kept the price below $50 a barrel for most of the past nine weeks.

The crude price is set for an 11 percent fall in September, its 11th monthly decline out of the last 15 months.

September has rarely been a month of strength for the oil market. In the last 15 years, the price has racked up a gain in September on only four occasions.

Most analysts have cut their forecasts for oil this year and next, but there is a feeling that the current downturn in prices may have run its course, even with the misgivings about the outlook for demand next year.

"We've been discussing the possibility that oil needs to move down to $30, but I think that is only if you run out of storage capacity and given that (there is) still quite substantial storage capacity, in my view you still have flexibility," said Bjarne Schieldrop, chief commodity analyst at SEB.

"Increasing stocks will increase the need for a higher contango," he said, adding: "If you look on the forward curve, buyers are increasingly (present) at the front end of the curve after having been burned heavily by ... longer-dated contracts."

The contango, or premium, at which longer-dated contracts trade above prompt Brent futures hit its highest since the start of the year earlier this month at $8 a barrel, but has since contracted to below $7.

Brent crude futures were down 45 cents at $48.15 a barrel at 0405 EDT, while U.S. crude  was down 37 cents at $45.33 a barrel.

The International Monetary Fund (IMF) is likely to revise downwards its global economic growth outlook due to weakness in emerging markets.

"The growth problem endures. Asia isn't about to bounce," Frederic Neumann, co-head of Asia economics research at HSBC in Hong Kong, said on Monday in a note to clients.

Monday's price falls came despite an ongoing reduction in U.S. drilling, which has been on the decline for four straight weeks, a sign continued weak prices were causing oil and gas producers to reduce drilling plans.

(Reporting by Amanda Cooper; Editing by Dale Hudson)

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