Oil Prices Rise amid Bleak Outlook

Oil prices rose on Wednesday after extending declines from a 7 percent drop earlier in the session amid mounting stockpiles and the possibility of lower demand.

December contract US West Texas Intermediate (WTI) crude oil futures were up 0.7 percent to $56.09 per barrel, while international benchmark Brent crude futures for January delivery climbed 1.4 percent to $66.42 a barrel.

Crude oil has lost about a quarter of its value since October in what has become one of the biggest slumps since the price collapse in 2014.

Crude oil futures succumbed to overwhelmingly bearish pressure amidst weaker market fundamentals, according to analyst Benjamin Lu.

Technical commodity analyst Wang Tao stated that Brent and WTI could experience further losses, with a likely Brent range of $62.18 to $63.95 per barrel and an estimated WTI range of $53.26 to $54.13 a barrel.

Weakness in spot prices has thrown the entire forward curve for crude oil into disarray. Spot prices were considerably higher than those for later delivery, a structure known as backwardation that signals a tight market as it is unappealing to put oil into storage.

The curve had flipped into contango in November, when crude prices for immediate dispatch were lower than those for later delivery. This suggests an oversupplied market as it makes it attractive to store oil for later sale.

Rising Supply, Economic Slowdown Pressure Oil Markets

Oil markets have been weighed down by rising supply and growing concerns over an economic slowdown, with Japan and Germany experiencing economic contractions in the third quarter, and with China posting lower car sales.    

US crude oil output from its seven main shale basins is expected to reach a record 7.94 million barrels per day (bpd) in December, according to the US Energy Information Administration (EIA) on Tuesday.

That increase in onshore production has helped overall US crude output C-OUT-T-EIA hit a record 11.6 million bpd, putting the US at top of the world’s biggest oil producers ahead of Russia and Saudi Arabia.

Several analysts see US output to rise above 12 million bpd during the first half of 2019.

Head of Commodities Jon Andersson said that will, in their view, cap any upside above $85 per barrel for oil prices.

The surge in US production is adding to the already growing supply. Data from the American Petroleum Institute (API) showed on Tuesday that US crude stockpiles surged by 7.8 million barrels in the week ending November 2 to 432 million as refineries reduced output.

The producers of the Organization of the Petroleum Exporting Countries (OPEC) have been keeping an eye on the climb in supply and price fall with concern. OPEC has reiterated that it would start curbing crude next year to tighten supply and improve prices.

Andersson said OPEC and Russia are under pressure to cut current production levels, which is a decision that they expect to be taken at next OPEC meeting on December 6.

That could put OPEC in conflict with US President Donald Trump, who supports low oil prices and who has demanded OPEC to not go on with the output cut.

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