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US crude resumes decline as oversupply concerns return

Traders said that the low prices heading towards the end of the year were also a result of seasonal price weakness

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Reuters Tokyo

US crude oil prices fell in early Asian trade, resuming their decline after strong gains on Monday snapped a six-day losing streak, on concerns about a global glut and mild winter demand.

West Texas Intermediate fell 5 cents to 36.26 by 0024 GMT. On Monday it rose 1.94% to $36.31, after briefly flirting with 11-year lows.

Brent , the global benchmark, was yet to trade. The contract settled down 1 cent at $37.92 a barrel on Monday.

Bearish sentiment remains strong, fuelled by an OPEC decision earlier in December to abandon setting a production ceiling for the oil cartel and a likely rise in supplies from Iran after sanctions are lifted following landmark deal on Tehran's nuclear programme.

 

Traders said that the low prices heading towards the end of the year were a combination of structural oversupply and seasonal price weakness.

"The market is very weak as the weather is very mild with reduced demand for heating oil," said Oystein Berentsen, managing director of crude oil at Strong Petroleum.

Oil markets usually see strong demand towards year's end as the northern hemisphere enters its peak heating demand winter season, yet an unusually mild start to winter, blamed at least in part on the weather phenomenon El Nino, has limited the amount of heating days.

BNP Paribas said that the United States, Canada and Europe had all been milder than normal in the last two weeks and that "in the next two weeks as a whole, all regions (including South Korea and Japan) will be milder than normal for this time of year, with the US, Canada and Europe being particularly milder than normal."

This seasonal weakness is adding to structural oversupply as producers pump out anywhere between 0.5 million and 2 million barrels of crude every day in excess of demand, helping pull down prices by two-thirds since mid-2014.

"Land storage capacity is now limited but OPEC keeps increasing production so the oil price is relentlessly trending down. Short-term further pressure can be expected and rallies will be sold. Iran may return to the market in January which is causing concern of increasing oversupply amid a mild winter," said Berentsen.

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First Published: Dec 15 2015 | 6:22 AM IST

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