Kristian Rouz — Oil gained overnight in New York, surpassing the $48/bbl threshold after having dropped to as low as $45.71 a barrel on Wednesday, erasing the negative effect of yesterday's US inventories data indicating a rise in crude stockpiles. Energy investors and traders say the oil bottom is likely behind us with crude prices poised to rise further with a renewed optimism on the demand side. However, energy market volatility is still high with inventory data swinging up and down consistently. Nonetheless, the oil market seems to have bottomed out at about $46/bbl: at least, the situation for oil sellers is not getting any worse in a foreseeable future.
In the US, Wednesday's data indicated a sudden rise in crude inventories to 8.03 bbl for last week, more than doubling previous projections and thus triggering a drop to below $46/bbl.
Overnight, however, US oil prices advanced beyond $48/bbl as traders and energy investors rushed into buying crude at the bottom.
Brent contracts for December delivery rose to $48.23/bbl in London after dropping to a the three-week low at $47.50/bbl the previous day.
A larger-than-anticipated rise in US inventories (the biggest since April) failed, however, to cause a massive drop in prices, indicating markets participants are eager to buy energy, in particular, ahead of the winter season with its traditional high demand for fuel.
Earlier this month, oil dropped below the psychologically important threshold of $50/bbl, signaling the energy oversupply is still here. In the US, crude stockpiles are still 100 mln bbl above the five-year average due to the boom in shale exploration and drilling, yet, as the entire industry has entered the muddy waters of low profitability and stagnant and thus limited productivity, there are more upward factors to the market in terms of prices.
Oil refining in the US intensified in early October, suggesting an accelerated demand for oil, with refinery utilization rising 0.4% to 86.4%, possibly ending a prolonged period of slack. Still, processing rates in the US are below average and just above their lowest this year. Most oil traders expect further intensification in this industry, also seen as a factor supporting oil prices.
Whilst Wall Street energy traders have bought more energy contracts than the previous three-week average, certain political decisions might add more upward pressure to oil prices.
Venezuela recently addressed Russia with proposals to boost oil prices to as high as $88/bbl via cutting output. Another oil-producing nation, Iran, last week addressed Saudi Arabia with a similar request. The current prices on energy are far below all four nation's either fiscal (Iran, Saudi Arabia) or commercial (Russia) breakeven rates, a factor yielding enough reason to coordinate pricing policies.
For now, at least, the good news is oil prices would not dip below their current level unless certain bold threats to economic expansion in advanced nations emerge. The still-lingering oversupply had reached its maximum scale stumbling upon productivity and profitability limitations, allowing for output regulations and demand-side factors to determine further price movements.
