Another contraction in industrial profits in top commodities
consumer China, along with caution before the outcome of the U.S.
Federal Reserve's first policy meeting of the year, knocked around
$1 off the price of oil.
Oil prices bounced on Tuesday after senior OPEC and Russian
officials stepped up vague talk of possible joint action to
eliminate one of the largest surpluses in modern times.
Brent crude <LCOc1> fell 71 cents to $31.09 a barrel by 1140 GMT
(6:40 a.m. ET), having risen by some 3 percent on Tuesday. U.S.
crude futures <CLc1> fell $1.09 to $30.36 a barrel.
"We are going to trough several times this spring. It's a terrible
situation in the physical market and stocks are just going to pile
up more, so we will get these reels down again. We haven't seen the
end of that process of being 'deep in the ditch'," SEB analyst
Bjarne Schieldrop said.
"Medium-term, there will be gradual improvement, but at least this
first half of the year will be ugly."
Oil prices have fallen nearly 16 percent so far in January, bringing
total losses since mid-2014, when the decline began, to 77 percent.
U.S. crude stocks rose by 11.4 million barrels last week to 496.6
million, the American Petroleum Institute said, topping analyst
expectations for an increase of 3.3 million barrels. [API/S]
"The positive sentiment stemmed from strong U.S. corporate earnings
and talk of OPEC and Russia considering production cuts. We consider
the likelihood of any agreement between these parties as extremely
low," ANZ said in a note.
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"However, rising U.S. crude stockpiles are likely to remain a
headwind in the near term."
That said, oil bulls are gradually starting to emerge, with this
month's drop below $30.
The options market shows traders are buying up protection against a
rise to at least $40 by the end of the year, and speculators have
increased their bullish bets on the price through the futures
Also, three U.S. shale oil companies have slashed their 2016 capital
spending plans more than expected in a bid to survive the
$30-a-barrel oil price.
Marco Dunand, the head of Mercuria, one of the world's biggest
trading houses, said the market was close to rebalancing. Famed oil
bull Andrew Hall, head of Astenbeck Commodities, said the market was
ripe for a jump.
(Additional reporting by Meeyoung Cho in Seoul; Editing by Dale
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