Oil prices fall as oversupply lingers, economic growth prospects darken
Oil prices fell on Monday, weighed down by global oversupply and slowing economic growth prospects, although the prospects of falling production lent crude some support.
US crude CLc1 was trading at $38.15 per barrel at 7.59am, down 35 cents from their last settlement.
Morgan Stanley said on Monday that "hedging plus storage" were capping US crude prices, meaning that traders were selling futures to hedge forward production and storage which will pressure prices.
The bank added that prices "will struggle to break $45 in the front, even if the USD continues to pullback."
Brent LCOc1 was down 26 cents at $40.13 a barrel after data showed that top exporter Saudi Arabia's February oil production was near record highs at 10.22 million barrels per day (bpd).
While Morgan Stanley said oil prices had likely bottomed out, it warned that a slowing economy and high production would prevent sharp rises.
"Oil prices now seem to have bottomed, even though they are likely to stay subdued for the rest of this year before starting to move higher in 2017," the US bank said in a separate note, adding that cheap oil had not provided the economic boost to growth that many had hoped for.
"When oil prices are falling below production costs, the income gains for consumers will be smaller than the costs to producers, and falling oil prices become a negative-sum game," it said.
The bank said it was "no longer looking for an acceleration in 2016 GDP growth" and that the risk of a global recession was now 30pc.
Following a 70pc price rout between mid-2014 and early 2016, oil markets are in flux. Many analysts expect a modest price recovery, while others see another slump.
The International Energy Agency (IEA) on Friday said that oil prices had bottomed out due to US and other output cuts.
The US oil drilling rig count fell for a 12th straight week last week to a total of 386, its lowest since December 2009 as drillers slash costs.
Others, like banks Goldman Sachs and Barclays, warn that global overproduction of some 1 million bpd will pull prices back down again.
"At least two quarters of prices below $40 per barrel... are required to balance the oil market," Barclays said on Monday.
So far, demand in core Asian markets remains strong. China's January-February refinery throughput rose 4.6pc compared to the same period a year earlier to 10.59 million bpd, official data showed on Saturday.
India on Monday also posted strong figures, with overall fuel demand up 11.7pc in February.
Still, sentiment is leaning towards higher prices, with the amount of managed short positions open for US crude down over 40pc since mid-February 1067651MSHT. Open positions betting on price increases are near record highs 1ICELCOTLNG.