Oil slides as US crude stockpiles surge

16th December 2015, Comments 0 comments

World oil prices sank Wednesday on news that US crude inventories unexpectedly surged last week, fuelling global oversupply.

The market also retreated ahead of the US Federal Reserve's long-awaited decision on interest rates.

US benchmark West Texas Intermediate for delivery in January tumbled $1.55 to $35.80 a barrel.

At around 1700 GMT, Brent crude for January stood at $37.27, down $1.18 compared with Tuesday's close.

Crude futures had climbed on Tuesday, extending a rebound from recent seven-year lows as cautious investors awaited the Fed, expected to order the first hike since 2006.

The market dived Wednesday as the US government's Energy Information Administration (EIA) reported that crude supplies rose 4.8 million barrels in the week ending December 11.

That confounded market expectations for a steep drop of 1.5 million barrels, according to analysts polled by Bloomberg.

"The EIA's report was another piece of bad news for oil, after the International Energy Agency last week said the global excess won't be removed until the end of next year," said Gain Capital analyst Fawad Razaqzada.

However, he sounded a cautious note about the looming Fed announcement from the US central bank's policy-setting Federal Open Market Committee (FOMC).

"This evening's FOMC statement could lead to a sharp rally in the dollar," said Razaqzada.

"This could be further bad news for buck-denominated commodities.

"But amidst all this doom and gloom, one should be wary of a surprise rally given, for example, that (oil) prices are severely oversold."

The prospect of higher borrowing costs has boosted the dollar, which in turn makes crude priced in the US unit more expensive for buyers holding weaker currencies. This tends to weigh on oil demand and pull prices lower.

The Fed will announce its decision at 1900 GMT on Wednesday, along with Fed projections for growth, inflation and interest rates over the next two years.

Higher US interest rates will make it costlier for countries with weaker currencies to purchase oil, further dampening demand.

Prices have fallen more than 60 percent since June 2014 owing to anaemic demand, a slowdown in key energy-consuming markets like China and a global glut.

The refusal by the Organization of the Petroleum Exporting Countries (OPEC) in early December to resort to production caps accelerated the fall in the past two weeks.

Analysts say Iranian oil also looks certain to re-enter markets next year after the lifting of sanctions linked to its controversial nuclear programme.

The UN watchdog International Atomic Energy Agency on Tuesday said it was closing its "consideration" of "possible military dimensions" of the programme, clearing one hurdle for sanctions relief under a deal between Tehran and six major powers.


© 2015 AFP

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