The Business Times

Oil prices rally ahead of Fed rate decision

Published Tue, Dec 15, 2015 · 10:43 PM

[NEW YORK] Oil prices climbed on Tuesday, extending a rebound from seven-year lows as cautious investors awaited the Federal Reserve decision on interest rates, expected to order the first hike since 2006.

US benchmark West Texas Intermediate for delivery in January rose for a second day, adding US$1.04, or 2.9 per cent, to US$37.35 a barrel on the New York Mercantile Exchange.

In London, Brent crude for January, the global benchmark for oil, closed at US$38.45 a barrel, up 53 cents (1.4 per cent) from Monday's settlement.

"The biggest part of the rally is a function of people covering shorts today," buying back positions they took last week expecting prices to fall, said Bob Yawger of Mizuho Securities USA.

Prices began rebounding late in New York on Monday after WTI passed briefly below US$35 for the first time since February 2009 during the global financial crisis.

Prices had fallen for six sessions as the market faces a long-running global oversupply that shows no sign of decreasing next year.

Matt Smitt of ClipperData pointed to market support from Nigeria's oil minister Emmanuel Kachikwu, who called for an urgent meeting of Opec if prices remain at low levels into February.

The decline in prices was exacerbated by the Organisation of the Petroleum Exporting Countries decision on December 4 to remove output limits, as the 13-nation cartel refused to cut back production to counter the slump in prices.

Prices have fallen more than 60 per cent since June last year owing to slack global demand and a slowdown in key markets including China.

Mike Dragosits of TD Securities said investors would be focused on how the Fed explains its widely anticipated rate hike.

"Whether they're going to hike rates is probably a non-issue right now ... it's more in the communications, whether they're going to signal a bit more positivity about the US economy," he said, which could reassure investors about demand in the world's largest consumer of crude oil.


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