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[HONG KONG] Oil bounced back after tumbling below US$30 a barrel for the first time in 12 years. A persistent oversupply means prices still haven't staved off the threat of further declines.
Futures rose as much as 2.2 per cent in New York, after dropping 3.1 per cent on Tuesday. While the industry-funded American Petroleum Institute was said to report US inventories fell 3.9 million barrels last week, government data on Wednesday is forecast to show supplies expanded. The world is now "confronting $20 oil," according to Citigroup Inc.
"The big picture for the market is still oversupply," David Lennox, an analyst at Fat Prophets in Sydney, said by phone. "It's going to be a tough couple of months for prices, US$30 oil is very painful."
Crude lost 18 per cent the previous seven sessions, the most since 2009, as volatility in Chinese markets fueled a rout in global equities and US supplies remained about 100 million barrels above the five-year average. BP Plc plans to cut 4,000 jobs, Petroleo Brasileiro SA slashed its spending plan and Malaysia's Petroliam Nasional Bhd warned that it faces several tough years.
West Texas Intermediate for February delivery climbed as much as 66 cents to US$31.10 a barrel on the New York Mercantile Exchange and was US$30.82 at 10.57am Hong Kong time.
The contract closed 97 cents lower at US$30.44 on Tuesday after slipping to as low as US$29.93. Total volume traded was about 65 per cent above the 100-day average. Prices lost 30 per cent last year.
Brent for February settlement gained as much as 48 cents, or 1.6 per cent to US$31.34 a barrel on the London-based ICE Futures Europe exchange. The contract slid 69 cents, or 2.2 per cent, to US$30.86 on Tuesday, the lowest close since April 2004. The European benchmark crude was at a premium of 35 cents to WTI.
Supplies at Cushing, Oklahoma, the delivery point for New York futures and the biggest US oil-storage hub, declined by 300,000 barrels last week, the API said on Tuesday, according to a person familiar with the figures. Nationwide inventories probably rose by 2 million barrels through Jan 8, according to a Bloomberg survey before an Energy Information Administration report.
The EIA cut its 2016 forecast for WTI by 24 per cent to US$38.54 a barrel, according to its monthly Short-Term Energy Outlook on Tuesday. US output will drop an average 700,000 barrels a day in 2016, and an additional 270,000 barrels a day next year, the report showed. Production averaged 9.2 million barrels a day through Jan 1, according to EIA's weekly data.
"The US$20 number is something you have to talk about," Ed Morse, the global head of commodities research at Citigroup, said on Tuesday in Calgary. "When you've seen a US$10 price slide and WTI is trading just slightly above US$30, the likelihood is fairly great. Clearly oil markets cannot maintain a price at below the US$30 level for very long. The question is how much longer."