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Oil near six-year low; Brent trades at par to U.S. crude
(Reuters) - Oil tumbled 5 percent to near six-year lows before recovering ground on Tuesday, and Brent briefly traded at par to U.S. crude for the first time in three months as some traders moved to take advantage of ample storage space in the United States.
Traders were searching to store the glut of oil, which has knocked prices down 60 percent in the last six months. So far this week, Brent has lost 7 percent and U.S. crude 5 percent.
Brent LCOc1 settled down 84 cents at $46.59 a barrel, after falling to $45.19, its lowest since March 2009.
U.S. crude CLc1 closed down 18 cents at $45.89, after hitting an April 2009 low of $44.20.
Oil tumbled earlier after big OPEC producer United Arab Emirates defended the group's decision not to cut output to boost prices.
Losses were pared by a flurry of short-covering toward the close, as players moved to cash in on profitable short positions, traders said.
The arbitrage between Brent and U.S. crude traded at parity for the first time since October, with both markets touching $46 a barrel at one point.
Traders said the benchmarks converged as limited storage on land for Brent forced traders to look for storage in the Cushing, Oklahoma, delivery point for U.S. crude.
U.S. onshore storage tanks for crude are barely a third full, showing the highest vacancy rate since the government's Energy Information Administration began its bi-annual survey of tank farm capacity in 2010.
Some said the convergence was not sustainable because the narrowed arbitrage attracted foreign imports.
In the case of Brent, some the world's biggest traders booked supertankers to store at least 25 million barrels at sea in recent days in hopes of profiting later if prices recover.(link.reuters.com/rux73w)
At least 11 very large crude carriers (VLCCs) have been reported booked with storage options, shipping sources and fixture lists show, rising from about five vessels at the end of last week. Each VLCC can hold a maximum of 2 million barrels of oil.
Price differentials for U.K. North Sea Forties crude weakened on Tuesday, pressured by an abundant supply in the Atlantic basin.
The U.S. government said domestic oil production will rise by 200,000 barrels per day in 2016, the slowest rate of growth since 2011, reflecting the impact of plunging prices on drilling.
Traders continued to wonder when the price rout would end.
"Despite the magnitude of the selloff, there are no indications anyone knows what the bottom is," said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.
The industry group American Petroleum Institute (API) late on Tuesday reported that U.S. crude stocks had risen 3.9 million barrels last week.
Gasoline and distillate stockpiles also rose, the API said.
The Energy Information Administration's oil inventory report is due on Wednesday at 10.30 a.m. ET.
Oil near six-year low; Brent trades at par to U.S. crude | Reuters
Can someone explain the impact on:Oil tumbles to $45 a barrel, bringing cheer to consumers for now
NEW DELHI: Global oil prices breached the six-year low of $45 a barrel briefly on Tuesday but the last word is yet to be heard on how far crude would slide before bouncing back. While the low prices kept the good times rolling for emerging economies such as India, the slide is not without negatives.
Crude has fallen nearly 60% from $111 a barrel in June after Opec swing producer Saudi Arabia initiated a price war to retain market share against rising supplies from new players such as the US shale industry and Russia.
For India, the takeaway has been sharp reduction in pump prices of petrol and diesel. Petrol prices are now Rs 12.27 per litre lower than in August, while diesel prices are down Rs 8.46 a litre since October. Another round of cuts is expected on Janaury 15.
Low oil prices would reduce inflation and the oil import bill, which was $160 billion last year and is likely to be around $100-110 billion this year. It would also bring down subsidy on kerosene and cooking gas. All these would go a long way in keeping the deficit in check and lowering the need for raising taxes.
Oil prices are predicted to rebound in a year, even though they may not reach $100. That's when the government would be saddled with the job of managing the politically difficult task of raising pump prices.
Also, the low prices would make many new projects of oil producers such as ONGC and OIL unviable. To the extent that the supply glut is also seen as a result of a slowdown in the global economy, it also spells bad news for Indian exports and could pose a setback for the government's 'Make in India' plans.
Oil supply hasn't yet shrunk. Fields closed during internal strife came back into production earlier than expected in Libya and supplies from Iraq remained unaffected. Simultaneously, European and other major oil-consuming economies showed signs of cooling, creating a situation of over-supply in the market.
Saudi Arabia has consistently refused to heed appeals from Opec members Iran and Venezuela to arrest the decline in oil prices by cutting production. Saudi oil minister Ali al-Naimi was recently quoted by Middle East Economic Survey that Opec would not cut production whatever be the price.
While predicting oil prices is acknowledged as a mug's game, analysts are no longer sceptical of hitting the bottom at $30 or so a barrel. Such low prices may spread cheer among consumers, it could push countries dependent on oil revenues to the brink of economic collapse — with unthinkable consequences for the global economy.
That the markets are getting the jitters was evident on Tuesday, with the oil slide rattling financial markets and currencies worldwide in spite of stronger than expected Chinese oil import data.
Oil tumbles to $45 a barrel, bringing cheer to consumers for now - The Times of India
* Indian economy.
* World Economy.
And how India can capitalise on this.