You are here
Oil near one-month low on unexpected US demand drop
[LONDON] Oil traded near one-month lows on Tuesday after a surprise fall in gasoline demand in the United States, the world's largest oil consumer, and on doubts whether oil producers can agree an output freeze to dampen a global supply glut.
US gasoline demand, one of the strongest pillars supporting oil consumption, fell in January for the first time in 14 months, US Energy Information Administration data showed.
The world's largest oil producers are due to meet in Doha on April 17 to negotiate an output freeze, but a jump in Russian oil production to a 30-year high in March has cast doubt over the chances of an output cap being agreed.
Iran, meanwhile, continues to ramp up oil exports and has said it will not join fellow OPEC and non-OPEC members in a production freeze. Those sentiments were reinforced on Tuesday when Deputy Oil Minister Marzieh Shahdaei said that she had no plans to attend the Doha meeting.
Brent crude, the global oil price benchmark, was down 27 cents at US$37.42 a barrel at 1238 GMT, close to a one-month low. US futures fell by 28 cents to US$35.42. "The market was surprised by two figures: Russian production at a 30-year high and US gasoline demand dropping for the first time in 14 months," said Frank Klumpp, oil analyst at Stuttgart-based Landesbank Baden-Wuerttemberg. "As long as most speculative money is long-positioned, there is more room for closing positions and falling prices."
Analysts at BNP Paribas agreed that oil prices could slide further, saying an emerging gasoline glut could add to a global overhang in crude output that exceeds demand by more than 1 million barrels of oil a day. "Global oil balances will witness sizeable implied inventory builds in the first half of 2016, suggesting that the price of oil can easily revisit the lows seen earlier this year," they wrote in a report.
Bjarne Schieldrop, chief commodities analyst at SEB, said that Brent futures could drop to US$35 a barrel in the sell-off. "We view this as a good opportunity to go long into Q2/Q3 ... Brent crude oil is likely to move until proven wrong," he wrote in a report to clients.
Though the stance of Iran and Russia has dented hopes of any meaningful agreement in Doha, the Opec governor of Kuwait said on Tuesday that a deal at the meeting could freeze production at February levels or an average of January and February.
Nawal Al-Fuzaia also said that she expects Brent crude to average between US$45 and US$60 a barrel in the second half of this year and for supply and demand to balance by year-end.