Christmas present for oil producers

Christmas present for oil producers

Crude oil prices rose Wednesday after the markets were closed in the previous day, but any rally is likely to be short-lived, as sustainable significant increases are only seen later down the road. United Press International reports in its article Oil prices rise after Christmas but gains not seen as longlasting that as of 7:15 a.m. EST West Texas Intermediate front-month futures rose just under 2 percent to $43.37 per barrel, while Brent front-month rose 1.2 percent to $51.40 per barrel as of the same time.

The rise was preceded by declines in recent sessions, which extended weakness that started after the markets reached an early October peak for the year at over $76 per barrel of WTI and over $86 per barrel of Brent. WTI prices fell from $52.58 per barrel on December 13 to $42.53 per barrel earlier this week ahead of the Christmas holiday.

Prices have declined because of investors' concerns that the market may be oversupplied, and an OPEC decision on December 7 to cut output by 1.2 million barrels per day from October levels starting Jan. 1 has so far failed to significantly stop crude oil's declining trend.

While prices showed some recovery on Wednesday, any rally may not last long. "If we do get a sustained overdue rally in the stock market then look for WTI and Brent crude oil to be underpinned by profit-taking and short-covering," James Hyerczyk, a senior analyst at FXEmpire.com, said in a report. "We may see some speculative buying, but without a support base, it is likely to be limited," he added.

Traders continue for the most part focused on what is perceived as a fundamental lack of balance with supply outweighing demand in the world's total physical oil market, estimated at about 100 million barrels per day.

Concerns about excess supply increased after November 5, when on the same day that United States nuclear-related sanctions against Iran went into effect Washington granted 180-day waivers to eight nations, including to Iran's biggest buyers, so that they could continue buying Iranian crude oil. "We may not see a strong rally until the Iranian sanction exemptions expire," Hyerczyk said.

Separately, Jeff Yastine, a senior research analyst at Banyan Hill Publishing, said that down the road the crude oil market shows strength potential. "The growth story for oil remains intact," he said. "The growth of the car culture in China, and in India (where in October, pre-sanctions, India's crude oil imports rose to their highest level in more than seven years -- and a series of record-breaking months for auto sales) will continue to take up whatever excess supply we see in the global market," Yastine said.

Production growth in Texas' Permian Basin is also fueling the idea that the oil market will be oversupplied for a long time to come but other things need to be considered, he said. "Forecasters are missing some key bottlenecks that will likely prevent the Permian from reaching its full potential," he added. "It's tough to find oilfield workers these days -- the unemployment rate is something like 2.1% for workers of that kind. Two -- oil fracking is an expensive activity that depends on cheap loans ... With rates headed higher, that means it's going to be even more expensive to pull oil out of the ground," he said.

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