Brent turns lower, heads towards $57 as supply glut fears prevail

Reuters News
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Posted: Jan 02, 2015 1:55 AM

By David Sheppard

LONDON (Reuters) - Brent crude <LCOc1> slipped towards $57 after an early rise above $58 on Friday, as the glut of oil that has halved prices since June overshadowed investors repositioning at the start of the year for an eventual recovery.

Brent has fallen to its lowest since 2009 as top exporter Saudi Arabia has declined to cut production in the face of fast-growing U.S. shale oil output, despite pleas from other members in the Organization of the Petroleum Exporting Countries (OPEC).

"Nothing has changed on the supply side. Unless there are some supply cuts, oil markets can't be strong at the moment," said Ken Hasegawa, commodity sales manager at Tokyo's Newedge Japan.

Brent crude <LCOc1> for February delivery was down 24 cents at $57.09 at 0843 GMT (0343 ET), almost $1.50 below the day's high at $58.54, which was hit within 30 minutes of the open of trading. Prices touched a post-2009 low of $55.81 on Wednesday.

Traders said a number of buy orders would have been placed ahead of the start of the new year's trading, with some willing to bet prices will bounce this year as expensive oil projects are potentially shuttered or canceled.

Front-month U.S. crude <CLc1> for February delivery was up 12 cents a barrel from Wednesday's close at $53.39, after reaching an intraday high of $55.11 shortly after the start of trading.

Markets were shut on Thursday for the New Year holiday.

Prices were also pressured on Friday after a senior Libyan oil official said a major fire in a storage oil tank at the North African country's largest crude export port had been extinguished.

WEAK CHINA DATA

The jump in oil prices early on Friday was also capped by surveys showing weak factory activity in China in December, which underlined the challenges facing the country's manufacturers as they fight rising costs and softening demand in the world's second-largest economy.

China's official Purchasing Managers' Index (PMI) slipped to 50.1 in December from November's 50.3, with weaker-than-expected oil demand growth in China last year contributing to the price collapse.

Iran's deputy foreign minister called on its regional rival Saudi Arabia to take action to support oil prices on Thursday, saying producer countries across the Middle East will be hurt unless the slump is reversed.

In the United States benchmark oil prices took some support from data on Wednesday showing inventories <USOILC=ECI> fell by 1.8 million barrels in the last week, but an increase of 2 million barrels at the U.S. crude contract's delivery hub of Cushing, Oklahoma kept gains in check.

(Additional reporting by Meeyoung Cho in SEOUL and Jane Xie in SINGAPORE; editing by Susan Thomas)