LONDON: The global oil market has faced another choppy week as dealers tracked supply glut concerns, the flagging dollar and the poor demand outlook centered once again on China.
Prices kicked off with three-week highs on Monday after Russia said last week that it could meet the OPEC producers’ group for talks on possible output cuts.
Oil then swiftly reversed direction on profit-taking, disappointing Chinese economic data, and doubts of an imminent reduction in the amount of oil being pumped out by leading producers.
WTI had closed below $30 per barrel on Tuesday for the first time since January 21.
“The market is quite convinced we’re not going to see anything immediately,” said Bart Melek, head of commodity strategy at TD Securities, in reference to a possible deal to lower output.
“We are in a situation where the supply side isn’t likely to contract because of no OPEC-Russia agreement—and then you have a new risk emerging that Chinese demand isn’t going to be there.”
China’s official purchasing managers index, which tracks activity in factories and workshops, fell to 49.4 in January, its lowest level since August 2012 and well below the 50 mark that separates growth from contraction.
That was the sixth consecutive month the Chinese manufacturing PMI has signaled contraction, adding to concerns about slowing growth in the world’s largest energy consumer.
Crude futures then rallied on Wednesday as the weak dollar eclipsed news of another strong increase in US crude inventories.
The US government’s Department of Energy reported that commercial crude stockpiles soared by 7.8 million barrels in the week ending January 29, worsening the glut.
That was almost double market expectations and took total crude inventories to 502.7 million, topping 500 million barrels for the first time on record.
“Oil has had a bizarre week as it actually rose on Wednesday despite news of the sharp build in US oil inventories,” said analyst Fawad Razaqzada at traders City Index.
“But the move was partly due to a correspondingly sharp drop in the dollar, which boosted the buck-denominated commodities across the board.”
Oil then fell Thursday on resurgent supply glut worries as traders discounted the odds of a near-term deal to cut output.
“Fundamentally, the picture remains weak,” said Gene McGillian of Tradition Energy.
“For a real rally to take hold, I think we need to see some kind of change, either in the fundamental picture or some kind of sign that some of the fears about the economic conditions are basically unwarranted,” McGillian said. “And right now, I am not convinced we’re seeing either of those.”
Prices have crashed by about 75 percent since mid-2014 as supplies piled up and demand was hit by a global economic slowdown led by China, the world’s second biggest economy.
The market—which hit 12-year lows last month—has also been plagued by the strong dollar that makes dollar-denominated crude more expensive for buyers using weaker currencies.
Meanwhile, this week, the energy sector revealed the brutal impact of collapsing oil prices in 2015.
BP posted a net annual loss of $6.5 billion (8.5 billion euros)—the largest annual loss for about 20 years—while Chevron, ExxonMobil and Royal Dutch Shell logged tumbling earnings.