Oil inches above $48, outlook remains weak

[January 21, 2015] By Himanshu Ojha

LONDON (Reuters) - Brent crude oil edged above $48 a barrel on Wednesday, consolidating after a drop in the previous session, although oversupply and the prospect of inventory rises make further weakness likely.

Prices fell on Tuesday after the International Monetary Fund cut its 2015 global economic forecast and OPEC member Iran hinted at further price weakness.

Brent rose 47 cents to $48.46 a barrel by 1200 GMT. U.S. crude added 19 cents to $46.66.

Prices are consolidating before Thursday's expected launch of a bond buying stimulus program by the European Central Bank, said Kash Kamal, an analyst at Sucden Financial.

"If you look at the $60 per barrel mark or $70 or $80, we stop at these psychological levels, consolidate for a while, wait for the next big macro data point to come out and then decide from there," said Kamal. "I do believe it still has some way to go on the downside."
 

In a strategy shift, the Organization of the Petroleum Exporting Countries decided last year against cutting its supply and is betting the drop in prices will curb the growth of more costly-to-produce competing sources, such as U.S. shale oil.

The price collapse is starting to slow growth in U.S. output, according to OPEC, and prompting investment cuts. The head of France's Total said he had ordered the company to limit U.S. shale spending.

Still, OPEC's own forecasts point to a surplus in 2015, leaving an excess for inventories to absorb.

"We see little scope for avoiding a large stock build in the first half of 2015 and therefore anticipate weak prices," analysts at BNP Paribas said in a report.

The latest weekly snapshot of supplies in the United States is due on Wednesday. Crude stocks are expected to rise by 2.6 million barrels.

Industry group the American Petroleum Institute releases its report on Wednesday. A U.S. government update follows on Thursday.

Brent fell almost 50 percent in 2014 in its biggest annual drop since 2008, pressured by weakening demand and a supply glut.

Russia has refused to cut production with OPEC, but Deputy Prime Minister Arkady Dvorkovich said on Wednesday that oil output may see a natural decline of as much as 1 million barrels per day (bpd).

(Additional reporting by Alex Lawler and Henning Gloystein in Singapore; Editing by Michael Urquhart)

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