OIL futures traded below $28 a barrel on Wednesday, dragged down by a fresh slide in the global financial markets and continued concerns about the glut of crude. Fears about an economic slowdown in China, the world’s second biggest economy, have rattled financial markets at the start of the year and added to the bearish sentiment on the oil market.
“Bearish fundamentals have clearly been weighing on oil prices this year, but financial selling on macro concerns has also played a major role,” Citi said in a report.
Oil price forecasts
The bank cut its oil price forecasts on the back of concerns about the Chinese economy and sees both benchmarks averaging $34 a barrel this quarter and $31 in the next.
Brent crude for March delivery, the global oil benchmark, was down 73 cents, or 2.5 per cent, to $28.03 a barrel on London’s ICE Futures exchange, after trading as low as $27.70.
On the New York Mercantile Exchange, March West Texas Intermediate futures dropped 81 cents, or 2.7 per cent, to $28.76 a barrel. The nearby February WTI contract fell 83 cents, or 2.9 per cent, to $27.63 a barrel. Oil investors fear that demand in China, which consumes around 12 per cent of world’s crude, may falter as the country shifts to a less energy-intensive economic model. On Tuesday, the Chinese authorities announced the country’s gross domestic product rose 6.9% in 2015, its slowest pace in 25 years. The bear market in stocks has finally arrived, says Michael Sincere.
On the supply front, there are few signs that the global glut of crude, which has battered prices since 2014, will abate soon.
The International Energy Agency, a top energy monitor, said on Tuesday that “unless something changes, the oil market could drown in oversupply.”
The IEA projects that oil markets will still have a surplus of 1.5 million barrels a day in the first half of 2016.
The lifting of international sanctions on Iran could add 300,000 barrels a day of crude by the end of the first quarter, reducing the effect of the 600,000-barrel-a-day reduction expected from producers outside the Organization of the Petroleum Exporting Countries, the IEA said.
A further reason for the sharper selloff in oil on Wednesday was the expiration of the February WTI contract, with most traders already having closed their positions and started to trade on the March contract, said Daniel Ang, a Phillip Futures energy analyst. The March contract was down 2.7 percent at $28.76 a barrel.
Nymex reformulated gasoline blendstock for February RBG6, -1.27% —the benchmark gasoline contract—fell 0.7 percent to $1.0187 a gallon.
February heating oil futures HOG6, -4.29% lost 2.6 percent to 88.49 cents a gallon.