Daily Management Review

Oversupplied Crude Prices Take A Dip As El Nino Limits The Winter Sale


The oversupply of crude oil leads to the fall of its prices, driving towards lowest bench marks seen in a long time.

Singapore – 15 December 2015 – On Tuesday, the 15th of December 2015, the oil prices fell downward, while “Brent “ is “set to” carry on its “losing streak” for the eighth day. Moreover, there are concerns among the investors “about a global glut and mild winter demand” causing the prices to hit an “11-year” low in the “previous session”.
The global “benchmark” being Brent, touched bay at “$37.74 at 0440 GMT”, whereby falling down by eighteen cents from its last stand, while it had shown slight increment earlier on Tuesday, before it dipped again.
On Monday, the contract kept the lowest at “$36.33 a barrel”, which is a “few cents above the $36.20”, the latter marks the lowest rate witnessed “during the 2008 financial crisis”. In case, the Brent stance falls further it will touch the margin that hasn’t fallen “since the middle of 2004”, whereby the margins were at “$36.23, down 8 cents”.
The decision made by the OPEC in the beginning on this month, wherein OPEC thought of abandoning the plan of “setting a production ceiling for the oil cartel”, retains a strong ‘bearish sentiment’. Moreover, once the “sanctions” on Iran “are lifted”, their supplies are “likely” to rise.
Last week’s price of “around $1.50 per barrel” has reduced the “Brent/WTI premium” to almost fifty percent, while the U.S. kept drilling to produce “large amounts” of raw materials and OPEC continued to flood international markets.
According to the traders, the low rates could be explained in a combination of “structural oversupply and seasonal price weakness”, while Strong Petroleum’s Crude Oil General Manager, Oystein Berentsen stated:
"The weather is very mild with reduced demand for heating oil”.
The oil markets usually reach their winter sale pinnacle towards the end of the year, as the setting of winter season increases the demands in heating systems. However, this year, the oil market has witnessed “an unusually mild start to winter” which is an attribution to the “El Nino weather phenomenon” as it has reduced the said demand.
In the coming two weeks, South Korea, Russia and Japan will experience “milder than normal temperatures” and Europe, U.S and Canada to have “‘particularly’ mild” temperature, reports BNP Paribas in a note. This season, supply is being exceeded by demands whereby on a daily basis “0.5 million to 2 million barrels of crude” is being oversupplied. Berentsen said:
"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. Iran may return to the market in January which is causing concern of increasing oversupply”.
Moreover, the interest rates of the U.S is expected to get higher, for the customers find it difficult to pay in other currencies as dollar continues to strengthen for crude oils are “priced in US dollars”. According to Citibank:
"The oil market remains more tightly balanced than is reflected in today's low prices. The oversupply is about 1.5 percent of a 95 million bpd market with limited spare capacity in a risky political setting for weak petro states prone to disruption”.


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