Oil rises on cold forecast but fear of glut persists
Oil prices jumped about $1 a barrel yesterday, as prospects of colder weather in the coming weeks inspired buying a day after prices slid 3pc.
However, slowing global demand and abundant supplies from OPEC members kept energy markets bearish.
Global oil benchmark Brent and US crude's West Texas Intermediate (WTI) futures rose more than 2pc each.
The two benchmarks have generally been in an uptrend over the past week as weather forecasts indicated the US may get some cold winter temperatures following an unusually balmy autumn. Expectations of a drawdown last week in US crude inventories fed the rally.
A Reuters poll suggested that stockpiles fell 2.5m barrels last week ahead of inventory reports from the American Petroleum Institute yesterday and the government-run Energy Information Administration today.
Brent was up $1.02 at $37.64 a barrel by early evening yesterday. WTI was up 96 cents at $37.77, after reaching as high as $37.88.
US heating oil, also known as Ultra Light Sulfur Diesel (ULSD), rose nearly 4pc to above $1.13 a gallon, leading the energy complex higher and rising with natural gas, another heating fuel.
"I would suspect today's activity is further furled by the short-covering in ULSD from the smattering of cold weather," said David Thompson at Powerhouse, an energy-focused commodities broker in Washington DC.
But on a global level, traders and analysts said the oil glut would persist into 2016. "Fundamentals remain very bearish," said ING Bank analyst Hamza Khan, noting the rebound came amid low trading volumes.
Brent and WTI remain more than two-thirds below their mid-2014 prices, depressed by abundant US shale oil supplies and the decision by the Organization of the Petroleum Exporting Countries to pump near record volumes of crude to safeguard their market share.
On Monday, leading OPEC producer Saudi Arabia announced plans for spending cuts and non-oil revenue raising methods to manage a record state budget deficit while state-owned oil firm Saudi Aramco pumps away.
World oil production this year has exceeded demand by 2m barrels per day at times. In 2016, Iran is expected to add its exports to the mix after Western sanctions on its oil come off.
"Iran is gearing up to flood the market with 500,000 bpd within weeks of sanctions being lifted," noted Ole Hansen, head of commodity strategy at Saxo Bank. (Reuters)