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Brent, U.S. crude oil battle for premium prices in weakening market


Oil barrel.

Oil barrel.

International Brent and U.S. crude oil futures battled for a premium yesterday, even as both benchmarks fell in a market in which there is no end in sight for oversupply that has brought down prices by two-thirds, since the downturn began in mid-2014.

The international crude oil futures benchmark Brent was trading at $37.58 a barrel at 0739 GMT, down by 31 cents from its last settlement. U.S. West Texas Intermediate (WTI) futures were down too by 47 cents at $37.63 per barrel.

The two benchmarks switched between premium and discount to each other several times in post-Christmas trading, yet traders were persuaded not to interpret too much into these movements, as low liquidity meant that prices could move abruptly without changes in fundamentals.

Trading volumes were down for both contracts in the post-holiday period, with only around 5,500 front-month Brent contracts changing hands by 0735 GMT yesterday, against over 272,000 contracts traded on December 7, the first Monday of the month. There were over 10,000 WTI contracts traded by that time compared with more than 635,000 deals on Decemder 7.

Singapore-based Phillip Futures said on yesterday that it expected “a quiet week ahead,” with the biggest expected news for energy markets likely coming from U.S. inventory data to be published on tomorrow and Thursday.

The U.S. market tightened slightly earlier in December, pushing it into a premium over global oil markets, following reduced drilling activity, withdrawals from near record crude stockpiles and the prospect of crude exports following a 40-year export ban.

While the U.S. slightly tightened, international markets remain over supplied as producers like Russia and the Organization of the Petroleum Exporting Countries (OPEC) produced between half a million and 2 million barrels of crude every day in excess of demand.

This is happening while developed and emerging economies especially in Asia are slowing.

Japan’s industrial output fell 1.0 per cent in November from the previous month, government data showed on Monday, suggesting that sluggish emerging market demand continues to cloud the outlook for the economy.

In Japan’s refining sector, total oil product sales in November fell to a 46-year low, as a shrinking population and warmer-than-normal weather dented demand for all of the main product grades despite lower crude oil prices, trade ministry data showed on Monday.

Total oil product sales fell 6.9 per cent in November from a year earlier to 3.04 million barrels per day (14.49 million kilolitres for the whole month), the lowest for the month since 1969, an official with the Ministry of Economy, Trade and Industry said.

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