Oil prices up slightly after plunging to 11 year low
Oil prices edged away from multi-year lows today as the northern hemisphere moves into the peak-demand winter season, but mild weather and ballooning supplies mean that prices are expected to remain generally low well into 2016.
The oversupply has already pushed down oil futures by more than 30 percent this year.
Brent futures were at $36.58 per barrel at 0548 GMT, off an 11-year low of $36.04 hit on Monday. US West Texas Intermediate (WTI) crude futures were at 36.07 per barrel, up from 2009 lows of $33.98 hit in the prior session.
Traders said the price jump was more related to a roll-over in contracts and the start of the peak demand winter season than because of changing fundamentals.
According to analysts, further large price rises were unlikely given an unusually mild start to winter in the northern hemisphere caused in part by the El Nino weather phenomenon, which will dent heating oil demand.
BNP Paribas said the number of US and European heating days had been 30 percent and 39 percent below the 10-year average since December 7, respectively, and that days requiring heating were expected to remain 23-24 percent below normal until January 4.
The weak winter demand is seen clashing with an expected rise in supplies once Iran's oil exports start to fully return after a lifting of western sanctions against Tehran.
Bank of America Merrill Lynch said Iranian output could rise by 600,000 barrels per day (bpd), from a current volume of around 1 million bpd within six months after sanctions end.
The International Energy Agency expects Iran's exports to rise by half a million bpd within 6-12 months of sanctions being lifted.
While prices might remain low, the Singapore Exchange (SGX) on Tuesday warned of high volatility at the end of the year.
"As we head into the holiday season, liquidity is likely to dry up and any further moves may be exaggerated, leading to much higher volatility," SGX said.
US crude has been firmer relative to Brent recently, with Brent's premium to WTI collapsing to under half a dollar, down over 95 percent since its 2015 peak reached earlier in the year.
WTI has been supported by a fall in drilling for shale oil this year. Prices were also supported by a congressional vote to end a 40-year-old ban on U.S. crude exports.
Brent, by contrast, has been weighed down by soaring production from Russia and OPEC. Iran's expected additional supply has also dragged on Brent.
As a result, analysts expect the Brent spot premium over U.S. crude to flip into a discount soon, something that has already happened with contracts for March 2016 delivery.