Crude oil prices drop on fading hopes for production cuts
London (Feb 2) Crude prices were down Tuesday as hopes for production cuts from major producers faded and investors focused back in on the weak fundamental factors underpinning the oil markets.
The global crude benchmark Brent LCOJ6, -3.45% fell $1.23, or 3.6%, to $33.01 a barrel for April loading while its U.S. counterpart West Texas Intermediate CLH6, -2.59% was down $1.07, or 3.4%, at $30.54 for March deliveries on the New York Mercantile Exchange.
The prospect of Russia agreeing a deal with major producers from the Organization of the Petroleum Exporting Countries is considered unlikely by most market observers, with several banks and think tanks expressing doubts that it will happen.
“Most petro-nations are starving for cash and the incentives are set to produce rather more than less, not least as Iranian barrels are returning to the market,” said Norbert Ruecker, head of commodities research at Swiss bank Julius Baer. “Lacking the signs of an ending supply glut, oil prices are set to remain in limbo in the very near term.”
The statement is backed up by Russia’s January production figures of 10.88 million barrels a day, among other numbers.
The London-based think-tank Energy Aspects said in a note that Russia’s recent statements welcoming production cuts may just be Moscow using the media to try to maneuver OPEC into changing its high production strategy.
Read: Why investors may want to ignore T. Boone Pickens’s call on oil
After market gains last week, downbeat sentiment has returned amid continued concerns about global oversupply and softening industrial data in economic powerhouses such as China.
The Ohio and Mississippi River locks and dams systems are slated to receive an influx of federal money for much needed repairs, despite an uncertain future for the coal shipping industry they serve. Photo: Robbie Whelan for The Wall Street Journal
China’s most recent round of manufacturing data, which came out on Monday, registered a sixth straight month of contraction in January. That increases uncertainty around Chinese oil consumption and could put some downward pressure on oil prices this week.
Still, some analysts argue that fears of a slowdown in Chinese consumption could be overblown. They argue oil demand will likely be supported by the industrial sector as China’s economy shifts toward a more services-oriented model.
Alan Oster, chief economist at National Australia Bank, said he expects China’s manufacturing and construction sector, which makes up about half of China’s economy, to grow by 8.5% this year.
Moreover, oil is still needed in the services sector for transportation and freight, he added.
“I don’t see the Chinese economy falling over, but I don’t see a huge increase in demand for commodities, including oil,” Oster said.
The industry body the American Petroleum Institute releases its weekly U.S. inventory forecast Tuesday ahead of Wednesday’s official figures from the Energy Department.
Source: Market-Watch
