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Oil dips after big rally as oversupply weighs on market

NEWS
By Reuters | January 15th 2015

Crude oil dipped on Thursday after a volatile session the previous day, when prices rebounded sharply from near-six-year lows that reflected a global oversupply.

Wednesday's 4.5 percent surge in Brent crude futures LCOc1, the biggest percentage gain since June 2012, came as traders covered themselves on expiring options.

However, the tone remains bearish because of the supply glut and on Thursday Brent had fallen back 19 cents to $48.50 a barrel by 0605 GMT. On Tuesday it hit $45.19, the lowest since March 2009.

U.S. crude CLc1 was trading at $48.38 a barrel, down 10 cents.

"We are again lowering our oil price forecast to reflect what will likely be an oversupplied market through at least the first half of 2015," U.S. investment bank Jefferies International said on Thursday.

"We are lowering our Brent price forecast: to $50.25/barrel from $72.25/barrel in 2015; to $67.50/barrel from $83/barrel in 2016; and to $77.25/barrel from $90/barrel in 2017," it said.

Jefferies said the use of floating storage would, in the near term, absorb barrels from the market in excess of physical demand, but noted that "those same barrels will eventually be delivered and could moderate a future price recovery".

ANZ bank said in a note on Thursday that it saw a 60 percent chance Brent would range between $40 and $60 a barrel in the first half of the year, a 30 percent possibility of prices falling to $35-45 during that time and only a 10 percent chance of prices going up to $60-80 a barrel.

"A war for output market share means oil prices are skewed to the downside. Funds are unwinding a large positive investment premium, but further selling is possible," ANZ said.

The glut in oil markets has been created by surging output around the world.

In North America, U.S. shale oil output has soared, while oil producer club OPEC decided late last year to maintain its output despite slowing Asian and European economic growth and to defend its market share. Russian output has reached levels not since seen the end of the Soviet Union.

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