Analysts warn of further losses for oil, saying prices will only stabilize if global production is reduced.
Oil prices recovered slightly in Asia on Tuesday after the U.S. contract fell below the psychological $50 mark in New York on demand worries, a strong dollar and a global supply glut.
West Texas Intermediate (WTI) for February, the U.S. benchmark, rose nine cents to $50.13 in afternoon trade. Brent crude rose for February rose 22 cents to $53.33. WTI fell as low as $49.95—a level not seen since May 2009—on Monday before closing at $50.04, down $2.65 from Friday. Brent fell $3.31 to $53.11.
“The price rebound [in Asia] is likely to be provisional as traders anticipate short-term moves in the oil market in this blow-off phase,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
Monday’s slide followed indications of rising output from key producers Russia and Iraq at a time when forecasters have trimmed their demand projections due to weak global economic growth. A long rally in the greenback, which gained 11 percent last year against a basket of major currencies, has also weighed on the dollar-priced oil market by making crude more expensive for buyers using weaker units.
Analysts are warning of further losses to come for the black gold.
Oil has dropped about 50 percent since June on worries about weak demand and a decision by the Organization of the Petroleum Exporting Countries not to cut output in response to lower prices and higher supplies. Monday’s heavy losses are a reminder to the market “that oil fundamentals have not changed just because we entered into the New Year,” said Daniel Ang, investment analyst at Phillip Futures in Singapore. “To further exacerbate the problem, a New Year means a new slate for oil bears and with them coming back to the market, this pushes the prices down further,” he said.
CMC’s McCarthy said prices could stabilize if global production is reduced following plummeting prices, and “the likes of China and the European Union revise their demand outlook this quarter.”