Oil tumbles to $45 a barrel, bringing cheer to consumers for now

Ray

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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
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
Can someone explain the impact on:

* Indian economy.
* World Economy.

And how India can capitalise on this.
 

ladder

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I think oil is purchased through long term contracts, which helps shielding from immediate rise in oil prices. Similarly the contract might have provisions to protect the seller from immediate effect of lowering of price. Although I don't have much knowledge, the price contracted as long term contract is not absolutely fixed but an index with some cushioning.

So, it would be prudent to think that some effect will be felt. As oil is an imported community, therefore oil price easing will definitely have positive effect on our economy.

The taxes are collected on petroleum are as a percentage of it's value, so if prices decreases the absolute value of taxes collected will decrease, if consumption is kept constant. Thus govt. would have to take a call on that.

Un-doubtfully some price benefit will be passed on to customer, like non subsidized LPG prices have already being cut. Private owner of vehicles will have some benefit. But, public transporters like always will reduce fare in such a way that has no easing effect on the customer's pocket.

It would have been good if govt. fast-tracked the proposed strategic oil reserves ( apart from those constructed ) to fill them up with cheap oil. Although we had in principle agreement with couple of oil producers who had agreed to fill them up for free of cost, and use them as reservoir for further trade with different countries. India would have reserved the right of first refusal.
 
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Dark Sorrow

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I have some unconfirmed reports that the put price for oil is $20 per barrel (meaning we can expect oil rice to fall).
Looks like Americans are leaving no stones unturned to screw Russian.
 

rock127

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Can someone explain the impact on:

* Indian economy.
* World Economy.

And how India can capitalise on this.
Russian Economy would be in trouble as they are facing the heat already.
 

sorcerer

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I have some unconfirmed reports that the put price for oil is $20 per barrel (meaning we can expect oil rice to fall).
Looks like Americans are leaving no stones unturned to screw Russian.
Not just the RUssians...The Saudi terror fundig house too.
 

sorcerer

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Role of Wahhabi Saudi Arabia in Financing Global Jihad: A Case Study in Financial Terrorism
Role of Wahhabi Saudi Arabia in Financing Global Jihad: A Case Study in Financial Terrorism - Indian Exponent


Drying the swamp
There are many strategies proposed by counter-terrorism experts to obstruct terrorist financing. Many of them are effective and, indeed, some of the steps that have been taken since September 11, such as freezing bank accounts and improving the scrutiny over international monetary transfers, contributed to a reduction in Al-Qaeda's financial maneuverability. But the only way to deal with the problem strategically is to reduce the disposable income and wealth generation capacity of terrorist supporters.

Hence, America's best weapon against terrorism is to decrease its dependency on foreign oil by increasing its fuel efficiency and introducing next-generation fuels. If the U.S. bought less oil, the global oil market would shrink and price per-barrel would decline. This would invalidate the social contract between the leaders and their people and stem the flow of resources to the religious establishment. It will likely increase popular pressure for political participation, modernity and reformed political and social institutions.

Reducing demand for Middle East oil would force the petroleum-rich regimes to invest their funds domestically, seek ways to diversify their economies and rethink their support for America's enemies. Only then financial support for terrorism could radically diminish.

Fueling Terror
 

ganesh177

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Last two falls in the crude oil have not been transferred to the price of indian petrol and diesel. Its still the same.
Why is modi govt reluctant ? I thought we had free floating prices now.
 

ezsasa

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Last two falls in the crude oil have not been transferred to the price of indian petrol and diesel. Its still the same.
Why is modi govt reluctant ? I thought we had free floating prices now.
1) to bring down fiscal deficit to the extent possible using the revenues.
2) considering that this price reduction is a artificial phenomenon, to avoid confusion by constant fluctuation of prices. Ex: when prices go down, corporates who are dependant on oil prices might declare tentative profits based on current oil prices. Prices going up unexpectedly causes market volatility and there by hits market sentiment, bad for the market.
 

Nicky G

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For India, a $50 B annual saving and great chance to control fiscal deficit and spend more where required and improve GDP. :thumb:

Crude price slump a boon for India: RBI

How falling crude prices impact India's GDP, inflation

GDP growth: Lower oil prices should boost growth through multiple channels: (1) lower inflation will boost households real disposable incomes, thereby pushing higher consumer discretionary demand; (2) improved corporate profit margins due to falling input costs will be an additional tailwind to reviving business investment; and, (3) improvement in macro fundamentals (inflation and the twin fiscal and current account deficits) will, at the margin, increase the space for macro (monetary and fiscal) policies to boost growth.

Every USD 10 per barrel fall in oil price can boost GDP growth by around 0.1 percentage points, according to Nomura.

Inflation: Given the higher share of tradable goods in the wholesale price index, the impact of lower commodity prices is much higher on WPI inflation than CPI inflation. Lower oil price directly impacts 8.6 percent of the WPI basket (crude petroleum and fuels excluding kerosene and LPG) and, additionally, around 5 percent indirectly through lower price of crude derivatives such as chemicals.

Every USD 10 per barrel fall in crude oil price lowers WPI by around 0.5 percent and CPI by about 0.2 percent.

Current account balance: Every USD10 per barrel fall in crude oil price improves India's annual current account balance by around USD 9 billion or 0.5 percent of GDP.

Fiscal balance: Petrol pricing is already market determined and oil marketing companies (OMC) are currently generating over-recoveries (profits) on diesel. Nomura's oil & gas analysts believe that benefits of over-recoveries on diesel may not stay with OMCs as these would be offset against diesel under-recoveries earlier in FY15. While this may not improve the OMCs profitability, this will reduce the government's fuel subsidy burden in FY15. The diesel subsidy, which amounted to 0.3 percent of GDP in FY14, will be eliminated going forward.

"Overall, lower commodity prices further support our view that India is entering a goldilocks period of lower inflation and higher growth," analysts at Nomura wrote, adding that they expect India's GDP to rise to 6 percent in FY15 from 4.7 percent in the last financial year. "On the inflation front, we expect CPI inflation to undershoot the RBI's target of 8.0 percent by January 2015 and to meet the 6 percent target by January 2016."
Modi and consequently India do have good luck at this time, since India is such a major importer of oil:

Fall in crude oil prices is perfect script that God has written for Modi Govt: Analysts
 
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Sambha ka Boss

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I have some unconfirmed reports that the put price for oil is $20 per barrel (meaning we can expect oil rice to fall).
Looks like Americans are leaving no stones unturned to screw Russian.
The main reason is Shale oil boom as the extracting Shale Oil is getting cheaper. Moreover, there is unlimited Shale oil reserve across the world. So, the oil producing countries need to diversify their economy to tackle future problems.
 

dastan

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This could help govt achieve fiscal targets and RBI might finally revise rates :D
 

Redhawk

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The Economist


The new economics of oil

Sheikhs v shale

The economics of oil have changed. Some businesses will go bust, but the market will be healthier


Dec 6th 2014


THE official charter of OPEC states that the group's goal is "the stabilisation of prices in international oil markets". It has not been doing a very good job. In June the price of a barrel of oil, then almost $115, began to slide; it now stands close to $70.

This near-40% plunge is thanks partly to the sluggish world economy, which is consuming less oil than markets had anticipated, and partly to OPEC itself, which has produced more than markets expected. But the main culprits are the oilmen of North Dakota and Texas. Over the past four years, as the price hovered around $110 a barrel, they have set about extracting oil from shale formations previously considered unviable. Their manic drilling—they have completed perhaps 20,000 new wells since 2010, more than ten times Saudi Arabia's tally—has boosted America's oil production by a third, to nearly 9m barrels a day (b/d). That is just 1m b/d short of Saudi Arabia's output. The contest between the shalemen and the sheikhs has tipped the world from a shortage of oil to a surplus.

Fuel injection

Cheaper oil should act like a shot of adrenalin to global growth. A $40 price cut shifts some $1.3 trillion from producers to consumers. The typical American motorist, who spent $3,000 in 2013 at the pumps, might be $800 a year better off—equivalent to a 2% pay rise. Big importing countries such as the euro area, India, Japan and Turkey are enjoying especially big windfalls. Since this money is likely to be spent rather than stashed in a sovereign-wealth fund, global GDP should rise. The falling oil price will reduce already-low inflation still further, and so may encourage central bankers towards looser monetary policy. The Federal Reserve will put off raising interest rates for longer; the European Central Bank will act more boldly to ward off deflation by buying sovereign bonds.

There will, of course, be losers (see article). Oil-producing countries whose budgets depend on high prices are in particular trouble. The rouble tumbled this week as Russia's prospects darkened further. Nigeria has been forced to raise interest rates and devalue the naira. Venezuela looks ever closer to defaulting on its debt. The spectre of defaults and the speed and scale of the price plunge have unnerved financial markets. But the overall economic effect of cheaper oil is clearly positive.

Just how positive will depend on how long the price stays low. That is the subject of a continuing tussle between OPEC and the shale-drillers. Several members of the cartel want it to cut its output, in the hope of pushing the price back up again. But Saudi Arabia, in particular, seems mindful of the experience of the 1970s, when a big leap in the price prompted huge investments in new fields, leading to a decade-long glut. Instead, the Saudis seem to be pushing a different tactic: let the price fall and put high-cost producers out of business. That should soon crimp supply, causing prices to rise.

There are signs that such a shake-out is already under way. The share prices of firms that specialise in shale oil have been swooning. Many of them are up to their derricks in debt. Even before the oil price started falling, most were investing more in new wells than they were making from their existing ones. With their revenues now dropping fast, they will find themselves overstretched. A rash of bankruptcies is likely. That, in turn, would bespatter shale oil's reputation among investors. Even survivors may find the markets closed for some time, forcing them to rein in their expenditure to match the cash they generate from selling oil. Since shale-oil wells are short-lived (output can fall by 60-70% in the first year), any slowdown in investment will quickly translate into falling production.

This shake-out will be painful. But in the long run the shale industry's future seems assured. Fracking, in which a mixture of water, sand and chemicals is injected into shale formations to release oil, is a relatively young technology, and it is still making big gains in efficiency. IHS, a research firm, reckons the cost of a typical project has fallen from $70 per barrel produced to $57 in the past year, as oilmen have learned how to drill wells faster and to extract more oil from each one.

The firms that weather the current storm will have masses more shale to exploit. Drilling is just beginning (and may now be cut back) in the Niobrara formation in Colorado, for example, and the Mississippian Lime along the border between Oklahoma and Kansas. Nor need shale oil be a uniquely American phenomenon: there is similar geology all around the world, from China to the Czech Republic. Although no other country has quite the same combination of eager investors, experienced oilmen and pliable bureaucrats, the riches on offer must eventually induce shale-oil exploration elsewhere.

Most important of all, investments in shale oil come in conveniently small increments. The big conventional oilfields that have not yet been tapped tend to be in inaccessible spots, deep below the ocean, high in the Arctic, or both. America's Exxon Mobil and Russia's Rosneft recently spent two months and $700m drilling a single well in the Kara Sea, north of Siberia. Although they found oil, developing it will take years and cost billions. By contrast, a shale-oil well can be drilled in as little as a week, at a cost of $1.5m. The shale firms know where the shale deposits are and it is pretty easy to hire new rigs; the only question is how many wells to drill. The whole business becomes a bit more like manufacturing drinks: whenever the world is thirsty, you crank up the bottling plant.

Sheikh out

So the economics of oil have changed. The market will still be subject to political shocks: war in the Middle East or the overdue implosion of Vladimir Putin's kleptocracy would send the price soaring. But, absent such an event, the oil price should be less vulnerable to shocks or manipulation. Even if the 3m extra b/d that the United States now pumps out is a tiny fraction of the 90m the world consumes, America's shale is a genuine rival to Saudi Arabia as the world's marginal producer. That should reduce the volatility not just of the oil price but also of the world economy. Oil and finance have proved themselves the only two industries able to tip the world into recession. At least one of them should in future be a bit more stable.
Sheikhs v shale: The economics of oil have changed.
 
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reetasharma

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Shale should control the oil prices the sheikhs are really increasing the prices when they feel like also mild east is quite unstable.
 

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Oil falls again as IMF cuts forecast; Iran hints at $25 oil
(Reuters) - Oil fell as much as 5 percent on Tuesday after the International Monetary Fund cut its 2015 global economic forecast and key producer Iran hinted prices could drop to $25 a barrel without supportive OPEC action.

Genscape, an analytics firm that monitors U.S. oil stocks, reported a 2.6 million-barrel build last week in Cushing, Oklahoma, the delivery point for the U.S. crude futures contract, adding to the market's bearish sentiment, traders said.

Trade group American Petroleum Institute will issue its data on U.S. crude inventories for last week on Wednesday while the government's Energy Information Administration will release its stockpile tally on Thursday, both delayed a day by a holiday on Monday.

Benchmark Brent crude LCOc1 closed down 85 cents, or 1.8 percent, at $47.99 a barrel. It earlier touched a session low of $47.78.

U.S. crude CLc1 settled down $2.30, or 4.7 percent, at $46.39 a barrel, after tumbling to an intraday bottom of $45.89. Traders said activity in U.S. crude was heightened somewhat by the expiry of the February futures contract CLG5 as the front-month.

The premium for Brent over U.S. crude futures CL-LCO1=R widened after Genscape's reported build in Cushing stocks. The arbitrage was at around $1.50 a barrel when U.S. crude settled, after reaching $1.66 earlier.

Oil prices are hovering near six-year lows after a selloff on worries of a glut caused primarily by unexpectedly high production of U.S. shale crude.

An expected slide in the U.S. oil rig count in the first quarter compared with the fourth quarter of last year failed to boost sentiment on Tuesday as traders and investors remain focused on concerns of oil oversupply.

"Because we have record oil production now, the falling rig numbers are not creating an immediate positive impact in bolstering prices," said Phil Flynn, analyst at Price Futures Group in Chicago. "In fact, they may be creating just the opposite impact; reminding us how poor demand is."

U.S. oil services firm Baker Hughes Inc (BHI.N) said in a conference call on Tuesday that the U.S. average rig count was expected to decline 15 percent in the first quarter from the previous quarter, and it expected to lay off some 7,000 staff.

Earlier data from Baker Hughes showed the number of rigs drilling for oil in the United States fell by 55 last week, the second-sharpest weekly drop in 24 years.

The IMF, in its latest World Economic Outlook report, reduced its global economic forecast by 0.3 percentage points for this year and next, projecting a 3.5 percent growth in 2015 and 3.7 percent for 2016.

Iran's Oil Minister Bijan Zanganeh said Tehran saw no signs of a shift within OPEC towards action to support oil prices, and that the industry could ride out a further slump toward $25.

Oil falls again as IMF cuts forecast; Iran hints at $25 oil | Reuters
 

sob

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@ladder, Central Govt. levies taxes and duties on crude and finished oil products on Ad valorem basis, i.e the amount is fixed and not in terms of percentage. so whether the prices rise or fall the revenue remains static. It is only dependent on volume. For the state governments it is opposite. Just this week Telengana has raised VT on petrol by Rs.2 so now the VAT rate is 25%+Rs2.

Other State Governments are also likely to follow suit, as they are fast losing a huge chunk of revenue.
 
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warrior monk

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The only sad thing in this scenario is we have only at 37,400,000 barrels that is around 2 weeks of oil for strategic reserves which is very low for a super sized country like India. We should increase it to 200 million barrels atleast
US has 1 billion barrels that is 27 times of Indias reserves . If we had these capacity we could have brought the cheap oil at 45$ and would have used it when we need it or when oil shoot up.
The govt of India is planning to increase the strategic reserves to 132 million barrel which is crap they should increase it up to 200 million barrel .
 

pmaitra

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Oil Surges 8 Percent as US Rig Count Plunges

Poised for a bounce many thought was overdue, short traders raced to cover their positions.

Barani Krishnan [SOURCE]

NEW YORK (Reuters) - Oil prices roared back from six-year lows on Friday, rocketing more than 8 percent as a record weekly decline in U.S. oil drilling fueled a frenzy of short-covering.

In a rally that may spur speculation that a seven-month price collapse has ended, global benchmark Brent crude shot up to more than $53 per barrel, its highest in more than three weeks in its biggest one-day gain since 2009.

The late-session surge was primed by Baker Hughes data showing the number of rigs drilling for oil in the United States fell by 94 - or 7 percent - this week. Earlier gains were fueled by reports of Islamic State militants striking at Kurdish forces southwest of the oil-rich city of Kirkuk.

Brent (LCOc1) settled up $3.86 at $52.99 a barrel, after running to as high as $53.08.

U.S. (CLc1) oil futures finished up $3.71 at $48.24, soaring by nearly $3 in a final frenzied hour and ending a two-week stretch of relatively steady prices, the longest break since a seven-month rout kicked off last summer. On Thursday prices had touched a six-year low under $44 a barrel.

Poised for a bounce many thought was overdue, short traders raced to cover their positions on fears that the rout, sparked by massive U.S. shale crude supplies, was nearing its end.

"The rig count drop was a lot more than people expected and it really got the market going," said Phil Flynn, analyst at Price Futures Group in Chicago.

According to Baker Hughes, the decline in oil drilling rigs was the most since it began keeping records in 1987. With drillers having idled about 24 percent of their oil drilling rigs since the summer, some traders may be betting that an anticipated slowdown in U.S. oil production is nearer than expected.

NOT OVER YET?

Some are not convinced that the sell-off in oil is over. The rout began in June when Brent peaked at over $115 a barrel and accelerated in November after OPEC refused to cut its production.

"There was a lot of short-covering before the month end from people wanting to take profit from the $40-odd lows, so it's not surprising that we rallied," said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York. But it will take a while for production to respond to lower drilling.

"This doesn't change the fundamental outlook in oil. We are still about 2 million barrels oversupplied."

Production from OPEC, or the Organization of the Petroleum Exporting Countries, rose in January to 30.37 million barrels per day (bpd), a Reuters poll showed, a sign that key members of the group were resolute about defending their market share.

A Reuters poll shows oil prices may post only a mild recovery in the second half of the year, with prices still averaging less in 2015 than during the global financial crisis.

Joseph Posillico, senior vice president of energy futures at Jefferies in New York, also warned of a short-term, short-covering rally that could be quickly reversed.

"This is just the market being the market and we could give these all back in the next few sessions."
 

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