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 An early rally in Brent crude proved difficult to sustain, as focus
returned to an overhang that has cut prices by more than 10 percent
this month.
"The drivers that pushed prices lower are still there," said Hamza
Khan, head of commodity strategy at ING, pointing to the strong
dollar and increasingly efficient U.S. shale operations in addition
to the overhang of physical oil. "Any rally today is going to have a
difficult time finding traction."
The front-month Brent crude contract was 5 cents lower at $44.13 a
barrel at 0700 ET. The contract finished 4 cents higher on Thursday
at $44.18.
U.S. WTI crude was trading 60 cents lower at $39.94 per barrel. It
ended down 21 cents on Thursday, after dipping to $39.89 during the
previous session, its lowest since Aug. 27.
The strength of the U.S. dollar, which was trading near seven-month
highs, has a negative impact on crude prices, as it makes oil and
other commodities more expensive for holders of other currencies.
Dollar strength, along with market fundamentals, have hammered
commodities from coal to copper over the past year. Crude futures
are already down around 60 percent since mid-2014 as supply has
exceeded demand by 700,000 to 2.5 million barrels per day, creating
a glut that analysts say will last well into 2016.
The overhang has seen Iraqi crude grades selling as low as $30 per
barrel, while official selling prices from Nigeria have fallen to
their lowest in more than a decade.
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U.S. crude futures have been particularly battered, with data from
the Energy Information Administration showing an eighth straight
week of stock builds. [EIA/S]
A growing discount between the front month and forward contracts,
which was trading near a record wide $8 per barrel, has sparked talk
of traders storing more crude in the hope of delivering later at
higher prices.
Market data suggests oil traders are preparing for another downturn
in prices by March 2016, as forecasts for an unusually warm winter
dent demand and Iran prepares for post-sanctions crude oil exports.
(Additional reporting by Meeyoung Cho; in Seoul; editing by David
Evans and Jason Neely)
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