Oil Prices Ease After 2 Day Record Rally Last Week

Oil prices dipped in the morning session giving back some of last week’s surge. Brent oil is down 49 cents at 49.42 while crude oil is trading at 44.37 off by 85 cents. Oil captured the eye again on Friday night as European and US stock markets rounded off the roller-coaster week with a largely flat run.

Crude prices tallied their best two-day rally since 2009 as US Nymex crude soared 6.3 per cent to 45.22 and global benchmark Brent crude bounded 5.2 per cent to 50.05. The rapid rebound — which included gains of around 10 per cent on Thursday night — has been driven by strong data out of Europe and the US as well as a recovery on Chinese markets, which has spurred the view selling in the early part of last week was overdone.

There has also been support from supply side issues, with Shell’s shutdown of two key Nigerian pipelines on Thursday a key to the sharp recovery. Concerns about a tropical storm bearing down on the Gulf of Mexico and a fresh outbreak of violence in Yemen also aided buying at the end of the week. The gains were again exaggerated by short covering, however, as some traders were forced to unwind heavy bets against crude.

Mixed signals by US financial policymakers last week on whether the US Federal Reserve would raise interest rates next month was weighing on sentiment, Ang said.

Some Fed policymakers left the door open to a September interest rate hike at an annual central bankers meeting on Friday in comments that appeared to contradict those by the New York Fed president earlier in the week who said a rate increase seemed “less compelling”.

The comment came after turmoil in global markets in recent weeks following China’s currency devaluation and concerns over its slowing economy. Investors are eyeing a slew of economic data, including key US non-farm payroll data, later this week that could give direction on a possible US rate hike when Fed policy makers meet on 16-17 September.

A rate hike is expected to support the US dollar, making commodities including oil more expensive for users of other currencies.

The market is also watching the outcome of planned United Nations-brokered talks later this week between Libya’s warring factions aimed at forming a unity government. Libya posted a budget deficit of $3.3 billion in the first seven months of 2015 as oil production fell and weak oil prices weighed, the Tripoli-based central bank said on Sunday.

Analysts say so-called unconventional oil – crude recovered from difficult environments such as the Arctic – needs to command a price of between $70 and $100 a barrel to make its recovery economical.

At present, though oil demand is strong, there are deep uncertainties about future economic growth, particularly in China. Oil is staying stubbornly below $50 per barrel. The big oil producers such as Saudi Arabia have not, as in the past, lowered output in order to shore up prices.  

A tentative agreement between western nations and Iran on nuclear issues is likely to mean new supplies of Iranian crude hitting the international market, putting further downward pressure on prices. Despite continue bombing and communal strife, Iraq is gearing up its oil production.

One of the major factors influencing the downward movement of oil prices over recent years has been the development of the US fracking industry, with vast amounts of oil and gas recovered from shale deposits deep underground.