Crude prices found at least temporary support early on Wednesday after the dollar weakened and China’s commodity imports came out surprisingly strong, but oversupply means prices are expected to remain low for some time.
US crude futures were at $38.11 per barrel at 0048 GMT, up 60 cents from their last settlement.
Traders said the recovery on Wednesday was largely a result of short covering, a dip in the dollar which makes oil more expensive for importers using other currencies domestically, and strong Chinese oil imports as the government takes advantage of cheap oil to build up its strategic reserves.
Analysts said there was a plethora of factors, including the strong dollar, weakening global demand, soaring supplies as well as the unwinding of the quantitative easing (QE) premium with the US Federal Reserve expected to hike rates soon.
“Whatever the case, a CRB index hovering around 13-year lows and oil prices close to seven year troughs suggest that commodity producers in general are doing it tough,” ANZ bank said, referring to the Thomson Reuters Core Commodity CRB Index falling below 178 points for the first time since 2003.
In oil, a ballooning glut is seen between 0.5-2 million barrels of crude a day in excess of demand, prices are down by almost two-thirds since 2014, and most analysts say they do not see prices rising much until late 2016 at the earliest.
“Low oil prices will continue to weigh on the sovereign credit profiles of major exporters in 2016,” rating agency Fitch said. Fitch forecasts Brent to average $55 per barrel next year and $65 per barrel in 2017.
“The impact of the price falls from mid-2014 and changes to our oil price assumptions have been a key driver of sovereign rating actions,” Fitch said, adding that it had downgraded several oil producing countries and also put the world’s biggest oil exporter, Saudi Arabia, on negative outlook.
While producers suffer from low prices, consumers stand to benefit.
“Price falls represent a windfall to consumers and downstream users. The close to 30 per cent fall in oil prices since the start of the year presents a major deflationary impulse,” ANZ said.