Oil price recovers some ground but sentiment remains bearish
Crude oil futures prices have rebounded so far in today’s trading, but concerns that the global supply glut will persist to at least the second half of the year continued to weigh on crude. Market participants have now shifted their attention to the upcoming US inventory data and the European Central Bank’s policy meeting.
Brent for March delivery had gained 24 cents, or 0.5 percent, to $48.23 as of 07:28GMT on the London-based ICE Futures Europe exchange. Yesterday, the benchmark slid 85 cents as China, the world’s second biggest oil consumer, reported that its economic growth in 2014 slowed to 7.4 percent, the weakest rate since 1990. According to some analysts, prices are expected to remain low until the latter half of the year. Reuters cited a note from BNP Paribas as saying:
“We see little scope for avoiding a large stock build in 1H15 and therefore anticipate weak prices […] Commodity price strength is inversely related to the dollar. With the US in monetary tightening mode and Europe and Japan in an expansive phase, an expected stronger dollar will create headwinds for any upward oil price improvement”. Traders are focusing their attention on tomorrow’s ECB monetary policy meeting, which could see the announcement of a quantitative easing (QE) asset purchasing programme.
March WTI futures had rallied 0.82 percent, or 38 cents, to $46.85 in electronic trading on the NYMEX in New York as of 07:28 GMT. Yesterday, the February contract expired after falling $2.30 to $46.39.
Market participants will also be eyeing the weekly inventory report from the US Energy Information Administration (EIA), due tomorrow at 16:00 GMT. The Wall Street Journal cited Citi Futures analyst Tim Evans as saying that slower consumption by oil refineries makes further accumulation of oil stocks quite likely, while a narrow price difference between U.S. and global oil prices suggests higher imports. According to Evans: “With inventories already at 387 million barrels […] we see potential for the total to break last April’s 399 million-barrel record, making a stronger bearish statement”.
Based on the two front month contracts, Brent was trading at a premium of $1.38 to WTI as of 07:28 GMT. The ratio was down 44 cents from yesterday’s $1.82 close.