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Monday, January 24, 2022

Brent comes off 6 week low to rise above $54, but glut worries drag

Brent comes off 6 week low to rise above , but glut worries dragSINGAPORE: Brent crude rose above $ 54 a barrel in choppy trade on Tuesday, recovering some of the previous session’s losses when it hit a six-week low, but concerns over a growing supply glut kept a lid on gains.

Prices on the other side of the Atlantic fell for a sixth session to just above a six-year low, keeping their discount to Brent at near $ 10, a trend that analysts say could deepen.

“The oil market is currently oversupplied, driven in part by the success of North American shale,” Morgan Stanley said.

While the US rig count has dropped from 1,809 rigs a year ago to 1,125 last week, past cycles have shown there is “often a lag between when drilling stops and when oil supply stops growing”, the bank said in a note.

Brent, which fell to a session-low of $ 53.94, was trading at $ 54.02, up 8 cents, by 0629 GMT. The April contract that expired in the previous session closed down $ 1.23 after hitting $ 52.50 earlier in the day, its lowest since Feb. 2.

US crude, or West Texas Intermediate (WTI), was at $ 43.73 a barrel, down 15 cents and slightly above 6-year lows of $ 42.85 marked on Monday.

“We expect WTI to remain under pressure as inventories swell further as the seasonal maintenance period begins. We expect this to remain the case in the short term,” ANZ bank said.

“There is a lot of trade on it. Traders would be quite happy to see the spread go out to $ 15-20,” said Jonathan Barratt, chief investment officer at Sydney’s Ayers Alliance.

“We have reached a real bifocal point for the market. We either enter a more bearish mood with a new low or it turns around and becomes a bit bullish,” he said.

Traders are now waiting for data on US crude inventories for price direction. A Reuters poll showed a likely build in stocks for a tenth week to a new record high.

The poll was released ahead of weekly reports from industry group the American Petroleum Institute (API) and from the US Department of Energy’s Energy Information Administration.

The potential of a nuclear deal that could end sanctions against Iran, allowing Tehran to send more of its oil into the market, also dragged on oil markets.

Copyright Reuters, 2015

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