LONDON: Oil prices eased on Tuesday, reversing the previous day’s gains, as the risk premium stemming from the Paris attacks faded, and the focus returned to the global oversupply in crude and petroleum products.
Analysts said that despite the Paris attacks and French retaliation against Daesh in Syria, prices would remain low for the rest of the year and into 2016 as oil markets stay oversupplied. Production in 2015 will outpace demand by 700,000 to 2.5 million barrels per day, according to estimates.
“Today, it’s back to the drawing board. The market is still oversupplied and yesterday was an adjusting of positions after these dreadful events,” PVM Oil Associates analyst Tamas Varga said.
“Unless the geopolitical tensions, which have obviously risen since Friday, are going to be manifested in physical supply destruction in the Middle East, I think sentiment should remain more bearish than bullish.”
Brent crude futures were down 13 cents at $44.43 a barrel by 1122 GMT, having closed up 2 percent on Monday. Front-month US crude futures were down 34 cents at $41.40 a barrel.
The premium of Brent futures over their US equivalent narrowed to around $1.94 a barrel, from closer to $4 at the start of the month. Many speculators are preparing for further price falls.
Most open interest in options expiring in December is clustered around put options — which give the holder the right, but not the obligation, to sell Brent futures — at $40 a barrel.
“The well-supplied crude market, record-high inventories in OECD (countries that are part of the Organization for Economic Cooperation and Development) and lack of a material threat to the oil facilities in the Middle East from the military escalation against IS in Syria are going to prevent geopolitical premiums building in oil prices,” BMI Research said.
Lower for longer
Money managers cut their net long US crude futures and options positions to the lowest in three months during the week to Nov. 10, the US Commodity Futures Trading Commission (CFTC) said on Monday.
The speculator group cut its combined futures and options position in New York and London by 27,456 contracts to 127,351 during the period.
US crude oil prices have now been lower than $50 per barrel for longer than they were during the height of the global credit crunch in late 2008/2009, and the forward curve also shows less price increase today than it did then.
“It reflects the ‘lower for longer’ thesis and expectation that it is likely to be a slower rebalancing process than initially anticipated,” said Virendra Chauhan, oil analyst at Energy Aspects in Singapore.