By Kevin Baxter
Oil prices were under pressure again Monday, with the brief stability in global markets that followed the U.S. presidential election replaced by the prior narrative of supply and demand worries.
The January contract for global crude benchmark Brent declined 1.1% to $44.26 a barrel Monday morning, while West Texas Intermediate fell 1.5% to $42.77 for December deliveries.
Brent has recovered slightly from a three-month low of $44.20 on Friday, but the negative sentiment engulfing the oil markets looks set to remain for the rest of the week.
The majority of the gloominess is being created in one way or another by the Organization of the PetroleumExporting Countries, according to Germany's Commerzbank.
Most observers remain deeply skeptical that OPEC will be able to dig itself out of the hole it now finds itself by cutting production to between 32.5 million and 33 million barrels a day, as it proposed in late September.
In a note, analysts from the bank said that with many OPEC members fearing cuts, their taps have been turned up full. As a result the cartel produced 33.64 million b/d in October. This has caused global oversupply to reach 950,000 b/d and means that OPEC will have to cut more production than anticipated when it meets in Vienna on Nov. 30.
Other market watchers believe that OPEC should abandon its pledge to cut production as it becomes more apparent that the proposed cuts are almost impossible to impose and enforce.
Bjarne Schieldrop, commodities analyst at Sweden's SEB bank, said that lower oil prices have meant that OPEC has created more demand for its oil. He added that with Libya and Nigeria on the verge of bringing significant additional volumes to the market, it would make more sense to postpone any cuts for now and revisit the situation in 2017.
"In our view it is probably a better strategy for OPEC to let its production rise to its natural level [of between 35.5 to 36 million b/d] and let the oil price stay muted for a little while longer, thus avoiding reactivating U.S. shale oil production too early."
OPEC's market defense strategy is certainly working in China with huge imports coming in to the country to offset the declines of its domestic fields. October witnessed the lowest level of oil production in China since May 2009 at 3.78 million barrels according to official figures.
Meanwhile, global refinery throughput, a market term for the amount of crude oil passing through refineries, is forecast to see a year-on-year rise in demand growth from 200,000 b/d in 2016 to 800,000 b/d in 2017, according to the New York-based Morgan Stanley bank.
Nymex reformulated gasoline blendstock futures -- the benchmark gasoline contract -- fell 0.66% to $1.30 a gallon, while December diesel traded at $1.40, down 0.37%.
ICE gasoil futures changed hands at $408.50 a metric ton, up 0.45%.
Write to Kevin Baxter at Kevin.Baxter@wsj.com
(END) Dow Jones Newswires
November 14, 2016 08:57 ET (13:57 GMT)
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