 "Goldman sees high risk of oil prices dipping further")
Oil steadied on Thursday, close to an 11-year low, pressured by a relentless build in oversupply, and as the dollar strengthened after the US Federal Reserve raised interest rates for the first time in nearly a decade. Brent crude for February delivery, the front-month contract from Thursday, rose 4 cents to $37.43 a barrel by 1259 GMT. The global benchmark lost 3.3 per cent in the previous session.
A dip below $36.20 will be the lowest since July 2004.
Goldman Sachs said it would take a further fall in oil prices to push OPEC into coordinated cuts in production to support prices.
The one scenario where we could see OPEC cut output is one where fundamentals push prices down to the steep part of the cash-cost curve, the bank said in a note to clients.
Such a cut would occur at lower prices and for now the market needs to rebalance through low prices.
Analysts said such a move in the run up to year-end would be likely.
The price action is likely to remain violent, but the odds are on lower numbers, said PVM Oil Associates technical analyst Robin Bieber. Stick with the trend. It is not advised to be long. Government data showed a surprise build in US inventories on Wednesday, adding to a global glut that has contributed to a near 17 per cent slump this month alone. Brent has tumbled from a high above $115 in June last year.
West Texas Intermediate (WTI) for January delivery, the front-month contract, was down 33 cents at $35.19. US crude fell nearly five per cent on Wednesday. Another potential source of supply for international markets would be US crude should lawmakers vote to lift a ban on exports as early as Friday.
The likely lifting of the ban has seen Brent crude's premium to WTI shrink to below $1 per barrel. The premium was above $13 per barrel in March. OPEC countries are cutting price to get market share, and they'll have to do so even more if US oil comes onto the international market, Jasper Lawler, analyst at CMC markets said.
The Fed raised rates on Wednesday, a sign it believes that the US economy had largely overcome the calamity that was the 2007-2009 financial crisis.
Higher US rates typically support the dollar, making dollar-priced oil more costly for holders of other currencies and undermining demand.
The dollar added around 1 per cent against a basket of major currencies.
Adding to the bearish global picture, OPEC producers see scant chance of a significant rise in oil prices in 2016 as extra Iranian production could add to the glut and the prospect of voluntary output restraint remains remote.
Goldman Sachs said it would take a further fall in oil prices to push OPEC into coordinated cuts in production to support prices.
The one scenario where we could see OPEC cut output is one where fundamentals push prices down to the steep part of the cash-cost curve, the bank said in a note to clients.
Such a cut would occur at lower prices and for now the market needs to rebalance through low prices.
Falling knives and dead cats: When will the oil slump end?
PUMP THAT SHALE! OR NOT
The United States is still pumping near-record volumes of crude, while Opec is keeping output near all-time highs to maintain market share. But the strain is starting to show. US oil production has fallen by about 200,000 barrels per day since an over four-decade high in April. Non-Opec annual supply growth shrank to below 300,000 bpd in November from 2.2 million at the start of the year, according to the International Energy Agency.
WELL, WELL, WELL! YOU DON'T SPEND, YOU DON'T GET
As ex-BP chief Tony Hayward told a conference in New York this year, if the money doesn't go into the ground, the oil won't come out. Non-Opec investment has been cut by around $130 billion this year from about $650 billion in 2014, Opec Secretary General Abdullah al-Badri said in October. In the US, the oil rig count is falling. Last week it dropped to 524, a third of what it was a year ago. A Barclays survey found that North American oil firms could cut investment by up to $19 billion next year after slashing it by $68 billion this year.
SAUDIS BLINK
Opec's refusal to cut production - or even simply set a ceiling - has sent prices into another tailspin, but that could change at any time. Riyadh is feeling the strain, albeit less so than poorer Opec members like Venezuela and Iran. Saudi officials have already floated ideas such as a value added tax and cutting energy subsidies. Any indication of Saudi softening its its policy of pumping flat out could mark a true turning point.
WAR-WAR, NOT JAW-JAW
With Iraq and Syria in disarray, Saudi bombing Yemen, and Russia still embroiled in conflict with Ukraine, there is plenty to watch. Compounding the risk, the amount of available spare OPEC oil capacity that could compensate for any sudden shortage has shrunk to just around 1.25 million bpd, the least since 2008, according to the EIA.
WAITING FOR IRAN
One major factor weighing on oil markets is the expected reemergence of Iran as an exporter next year after sanctions are lifted. Tehran has said it is gearing up to pump an extra 500,000 bpd of crude as soon as mid-year as sanctions are eased within months. If those exports do not materialize or are delayed, bulls may be emboldened to charge in.
ZOMBIES SWARM
US oil companies are feeling the strain and many, known as zombies, have stopped pumping as they wait out the downturn, saving cash and paying off what debt they can. If oil prices remain low, credit lines may be cut, sending companies under and cutting output capacity. The decision by most banks not to cut credit to producers this fall was bearish but if that leniency does not continue it will have the opposite effect.
GET IN THE CAR!
When crude drops, so do gasoline and diesel prices, and consumers worldwide are driving more. If that continues, it will be a supportive factor. British supermarket chains Asda and Morrisons have cut the price of petrol to below the one pound ($1.50) per liter mark, and others are expected to follow. China's car sales jumped 20 per cent in November from a year earlier, putting the world's biggest automobile market on track for annual sales growth of 5 to 7 per cent.
BALANCE WILL RETURN
Global markets are only oversupplied by about 1 million bpd, according to a report from Citi analysts on Tuesday, and a bridging of the gap is already under way. With incomplete and often lagging data, any sudden sign that the supply excess is diminishing more quickly than expected could ignite buying.
CHARTS DON'T LIE, DO THEY
Traders are mulling price charts which point to the possibility of a further drop in crude. But if supportive levels are not breached there could be a rebound. Technical analysts say if downward momentum runs out at the key support level of $35, prices will likely rebound. Some are looking back to the December 2008 lows as key supports; if U.S. crude avoids sinking below $32.40 a barrel, the bottom could be in. It was trading about $3 a barrel above that on Wednesday.
Source: Reuters
