Brent crude dipped below $40 a barrel Tuesday in a selloff that has raised a worrisome possibility: that oil prices could be even lower next year than they have been in 2015.
In a volatile trading session oil prices closed at nearly seven-year lows, extending losses that have rattled global stock markets and raised fresh questions about oil producers’ ability to weather a prolonged rout.
Analysts and investors who initially thought prices would recover in the second half of 2015 now say they don’t expect any pickup until late 2016.
Many producers continue to pump barrels at a fast clip, defying predictions that low prices would lead to a significant slowdown in output. Wall Street banks are revising down their price forecasts and, in some cases, calling for lower average oil prices in 2016 than in 2015.
Rising inventories of crude oil and petroleum products world-wide are at the crux of the oil market’s weakness. In the U.S., stockpiles have risen for 10 weeks in a row at a time when supplies usually shrink at the onset of winter.
"That’s probably the biggest controversy about when the oil-price recovery begins, is that very high level of inventories,” said Ed Cowart, portfolio manager at Eagle Asset Management, which manages $32 billion. For sentiment in the oil market to turn more bullish, he said, "you’ll really need to see some indicators that supply and demand are really tightening up.”
Brent, the global benchmark, pared losses during intraday trading on Tuesday to end at $40.26 a barrel, down 1.2% on ICE Futures Europe. U.S. crude for January delivery slipped 0.4% to $37.51 a barrel on the New York Mercantile Exchange.
(WSJ)
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