Oil Prices Rise But Energy Markets Remain Nervous
December 1, 2015 (Source: WSJ) — Oil prices were slightly higher on Tuesday with the market remaining jittery about oversupply and the strengthening dollar ahead of an Organization of the Petroleum Exporting Countries meeting later this week.
Global benchmark Brent crude was up 0.47% at $44.82 a barrel while its U.S. counterpart West Texas Intermediate was also up by 0.55% at $41.87 for cargoes loading in January.
Oil prices were lower earlier in the day and have swayed through the start of the week ahead of the Dec. 4 OPEC meeting. Analysts expect the fluctuations to continue.
“I am expecting more volatility on Thursday and Friday as the markets react to information coming through,” said Olivier Jakob from the Swiss-based analysts Petromatrix.
OPEC isn’t expected to change its strategy of maintaining high production.
Matt Parry, an analyst with the Paris-based International Energy Agency, said he thought it would be “crazy for them to turn back now.”
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OPEC’s primary mistake was to grossly overestimate how much it cost—the marginal cost—to produce a barrel of U.S. light oil. That is why oil prices have fallen to the $40-$45 a barrel range, he said, referring to the arrival of the U.S. shale industry.
“Everyone was talking about $70-$80 as the marginal cost and they were wrong,” said Mr. Parry.
The oversupply of crude continues to weigh heavily on sentiment. Germany’s Commerzbank AG believes the 2 million barrels a day oversupply will take some time to clear. The supply issue will probably remain on Friday, with OPEC unlikely to agree to production cuts without the cooperation of Russia and Norway, at the very least, the bank said in a research note.
Falling industrial data in China, the biggest driver of growth in crude demand, has also put prices under pressure.
On Tuesday, analysts had at least some positive news from Beijing.
Official numbers showed that China’s manufacturing activity declined only slightly in November. The data indicates that the sector is starting to stabilize and could be seen as a positive sign for Chinese oil demand in 2016, some analysts said.
Raj Shah has professional experience working for over a half a dozen years at financial firms such as Merrill Lynch and First Allied Securities Inc., ... <Read more about Raj Shah>