World oil prices will again come under more pressure this week, despite gains on Friday night, our time.
Those gains were driven by silly traders believing rumours that Opec countries will agree to cut production at their six monthly meeting next week.
Those reports appeared in the markets for no reason on Friday night, our time, hours after the International Energy Agency forecast continuing downward pressure on prices lasting well into 2015.
In fact the IEA said it saw the rules of the game changing for oil in coming months, and listed a series of factors which were changing the commodity’s outlook – weak demand, rising US production and the stronger US dollar.
But silly traders ignored the IEA’s realism and believed the fairytale about Opec riding to their rescue and up went oil prices.
On top of this there seems to have been some ’short covering’ by investors who had sold off oil futures at higher prices and needed to close out their contacts to lock in profits.
The price of US crude rose 1.8% on Friday to end around $US75.53 a barrel, while Brent crude ended up 2.3% on the day to $US79.24.
But for the week Brent crude lost almost 5% and US West Texas type oil fell 4%.
A slight weakening in the value of the US dollar on Friday also helped take pressure off oil prices, allowing them to rise on those Opec cut rumours.
The IEA said a combination of sluggish growth in China and Europe and booming US production from shale and other tight formations, would continue to pressure prices to go lower.
The continuing strength of the US dollar is adding to the downward pressure on oil and other commodities and the closer the US moves towards its first rate rise in more than six years from the Fed next year, the greater the pressures on commodities from the US currency.
The IEA said in its monthly report for November that prices could fall further in 2015 after declining to their lowest levels since 2010 below $US80 per barrel.
“While there has been some speculation that the high cost of unconventional oil production might set a new equilibrium for Brent prices in the $US80 to $US90 range, supply/demand balances suggest that the price rout has yet to run its course,” the IEA said.
And, barring any new supply disruption, “downward price pressures could build further in the first half of 2015”, it said.
Oil prices are down 30% or more since their peaks in June.
“Pressure on OPEC to reduce production is building, but at the time of writing there appeared to be no clear consensus on a formal supply cut ahead of its meeting in Vienna later this month,” said the IEA, which represents industrialised nations.
The IEA left its forecast of global oil demand growth in 2015 unchanged at 1.13 million barrels a day (bpd), from a five-year estimate of a 680,000 bpd rise this year.
The agency said higher consumption was expected because of an expected improvement in the global macroeconomic backdrop.
“It is increasingly clear that we have begun a new chapter in the history of the oil markets" the IEA said.
Total global oil deliveries edged up in October and were 2.7 million bpd higher than October 2013, as higher OPEC production added an extra 1.8 million bpd from non-Opec sources.
Opec cut output by 150,000 bpd in October to 30.60 million bpd, still well above the group’s official 30 million bpd supply target for a sixth month running. The IEA said it expected demand for Opec oil next year at around 29.2 million bpd, 100,000 bpd lower than its previous forecast.
However, the IEA said supply risks remained "extraordinarily elevated" and could be exacerbated by falling prices.
Those reports about a possible cut in oil production and the weaker US dollar saw gold prices bounce higher in sympathy overnight Friday.
Comex gold for December delivery jumped 2.1%, or $US24.10 to settle at $US1,185.60 an ounce, its highest price since it closed at $US1,198.60 on October 30.
Friday’s rise wasn’t enough to erase the week’s losses and gold still ended in New York down 0.4% on the previous Friday.
Comex December silver jumped 69c, or 4.4%, to $US16.31 an ounce.
Comex copper for December delivery added 5c, or 1.7%, to $US3.05 a pound to be unchanged over the week, and still stuck in the narrow trading range of the past month or so.
