By Jenny W. Hsu
Crude prices remained around multiyear lows in early Asia trade on Monday after industry watchdog International Energy Agency warned global crude demand will decelerate next year.
In its monthly report, the IEA said the growth of global oil demand will slow to 1.2 million barrels a day in 2016, compared with 1.8 million barrels a day this year, as support from sharply falling oil prices begin to fade. It said the Organization of the Petroleum Exporting Countries’ continued high-paced production and the possibility of more oil from Iran will cause global inventories to swell by 300 million barrels.
OPEC’s own report estimates global demand growth to reach about 1.25 million barrels a day, down from 1.53 million barrels a day in 2015.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in January traded at $35.35 a barrel at 0244 GMT, down $0.27 in the Globex electronic session. January Brent crude on London’s ICE Futures exchange fell $0.28 to $37.65 a barrel. Both grades lost around 15% in the past two weeks. U.S. oil previously settled this low in February 2009 and Brent in December 2008.
To lift prices, a pick-up in demand usually bodes better than a cut in supply because it is more sustainable, analysts said. But as countries shift away from heavy industries and boost their development of clean energy, oil demand may stay soft in the short-to-medium term.
“The only ray of sunshine that we can see now is that since prices are so low, further downtrend is limited. But, prices have not bottomed out,” said Daniel Ang, an energy analyst at Phillip Futures, tipping prices to stay soft until at least the second quarter of next year.
Low prices have prompted oil companies, particularly upstream players, to cut investment and delay projects by 20% this year, with downsides to likely linger well into the next, the IEA said.
However, given the lead time of around two to four years, a visible supply cut is still way off, said ANZ Research.
Market participants will be watching the U.S. Federal Reserve meeting on Thursday and Friday for hints about the direction of U.S. interest rates. Analysts said that while most traders have priced in the possibility of a rate increase, an official move would still strengthen the U.S. dollar, the industry’s standard currency, making oil more expensive.
Nymex reformulated gasoline blendstock for January–the benchmark gasoline contract–fell 62 points to $1.2753 a gallon, while January diesel traded at $1.1423, 33 points lower.
ICE gasoil for January changed hands at $340.00 a metric ton, down $3.25 from Friday’s settlement.
Write to Jenny W. Hsu at [email protected]