Oil price rises after sharp decline in investment

By: 
Reuters

LONDON: Oil prices rose on Tuesday after the International Energy Agency (IEA) noted unprecedented declines in investment, though the broader picture of an oversupplied market limited any gains.

Brent crude, the global oil benchmark, was up 0.25 cents at $47.44 a barrel by 1437 GMT, having fallen for four trading days in a row. U.S. crude rose 0.30 cents to $44.17 a barrel.

The IEA said oil was unlikely to return to $80 a barrel before the end of the decade, despite cuts in investment, as annual demand growth struggles to top 1 million barrels per day.

In its World Energy Outlook, the IEA also estimated that investment in oil would decline more than 20 percent this year and the trend would continue into 2016.

Oil majors have cancelled 80 projects across the world this year because of low oil prices and cut capital spending by as much as $22 billion, BP's head of exploration and production Lamar Mckay said.

The decline in investment, however, has not been enough to reverse oil's price weakness.

Carsten Fritsch, senior oil analyst at Commerzbank in Frankfurt, said he expected Brent to remain stuck between $47 a barrel and $52 until the end of the year.

Further evidence of stockpiling, expectations of a rise in U.S. rates and anaemic economic growth figures have helped push down prices recently.

"It has been the weekly (U.S.) inventory report that has been driving the market for the past three weeks," said Ole Hansen, Saxo Bank head of commodities research.

"It also highlights the focus that the world market has on the U.S. at the moment because that's really where the market is looking for the rebalancing to come from, so as long as that doesn't get provided then the market will continue to find itself under some selling pressure," Hansen said.

He added that a rise in U.S. rates could have a negative impact on growth in some of the emerging economies that are driving demand growth.

Oil majors expect that the global oil glut is likely to take longer than expected to clear and may depress crude prices for many more months if not years despite steep investment cuts and project cancellations around the world.

Still, comments from OPEC Secretary-General Abdullah al-Badri on the outlook for oil did provide a little bullish relief for the market.

"We are following the market day in and day out, month in and month out we see that 2016 is really producing some positive results," Badri said in Abu Dhabi.

OPEC holds its next policy-setting meeting on Dec. 4 and is widely expected to continue with its no-cut policy initiated in November last year.

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