Oil halts decline near 6-year low before US inventory data

[HONG KONG] Oil halted its decline near the lowest price in more than six years before weekly US crude inventory and production data.

February futures increased as much as 1 per cent in New York. Inventories probably rose by 1 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Wednesday.

That would keep supplies about 130 million barrels above the five-year seasonal average. Market rebalancing may be delayed until 2017, according to Morgan Stanley.

Oil is heading for a second annual loss on signs the global glut will be prolonged after the Organisation of Petroleum Exporting Countries effectively abandoned output limits at a meeting earlier this month.

Brent slumped to an 11-year low on Monday amid speculation suppliers from the Middle East to the US will exacerbate the surplus as they fight for market share.

"It's all about market share and bravado at the moment," Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said by phone. "West Texas continues to edge lower and the volatility should put a base in place."

West Texas Intermediate for February delivery gained as much as 35 cents to U$36.16 a barrel on the New York Mercantile Exchange by 5.17 pm. Sydney time. The January contract expired Monday after rising 1 cent to US$34.74. Total volume was about 8 per cent below the 100-day average. Front-month prices closed at US$34.73 a barrel on Friday, the lowest settlement since February 2009.

Brent for February settlement was 29 cents higher at US$36.64 a barrel on the London-based ICE Futures Europe exchange. The contract dropped 53 cents, or 1.4 per cent, to US$36.35 on Monday, the lowest close since July 5, 2004. The European benchmark crude was at a premium of 49 cents to WTI.

US crude stockpiles increased by 4.8 million barrels to 490.7 million through Dec 11, according to data from the EIA. That's the highest level since April when supplies swelled to the most since August 1982, according to weekly data.

Distillate stockpiles probably rose 2 million barrels while gasoline inventories increased by 1.5 million, according to the Bloomberg survey.

The prospect for greater declines in US output next year seem to be diminishing, Morgan Stanley's analysts said in an e- mailed report dated Dec 21. "Normalisation" in crude markets continues to be deferred amid the risk of more supply returning, they said.

BLOOMBERG