Oil Prices Ease but Hold onto Overnight Gains

Crude-oil futures eased slightly Wednesday after overnight gains on the back of strong economic data from the U.S. and China.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in February CLG5, -1.59% traded at $56.80 a barrel at last check, down $0.32 in the Globex electronic session. February Brent crude on London’s ICE Futures exchange LCOG5, -1.49% fell $0.38 to $61.31 a barrel.

Oil prices were volatile this week and traders remain divided over whether the Brent oil benchmark will hold at the $60 a barrel mark, which has emerged as a support over the last few days.

Brent crude is supported by the recent decline in Libyan oil production due to unrest, but “OPEC’s determination to fight for market share remains a dominant bearish fundamental factor,” analyst Tim Evans at Citi Futures said.

The Organization of the Petroleum Exporting Countries, led by its largest producer Saudi Arabia, has refused to intervene to support oil prices, which means that high-cost producers will be driven out of the market first.

The oil cartel however risks a fall in revenues while waiting for other producers to blink first.

“The collapse in oil prices looks set to wipe out the Gulf’s external [current account] surpluses next year, leaving China and the euro-zone as the world’s major surplus economies,” Capital Economics said.

It estimates that Gulf economies should be able to weather lower oil prices without making big spending cuts for a short period, and could even run a small current account deficit in the coming years.

Late Tuesday, the American Petroleum Institute said its data showed a 5.4-million-barrel gain in U.S. crude stockpiles for the week ended Dec. 19. Rising U.S. oil production due to the shale boom has been largely responsible for the glut in oil markets and a large build-up in U.S. supply typically weighs on oil prices.

The more closely watched weekly inventory data from the U.S. Energy Information Administration is due at 3:30 p.m. London time, or 10:30 Eastern Time, on Wednesday, and analysts expect it to show a drop of 1.8 million barrels.

Nymex reformulated gasoline blendstock for January RBF5, -1.59% — the benchmark gasoline contract — fell 122 points to $1.5582 a gallon, while January diesel traded at $1.9806, 101 points lower.

ICE gasoil for January changed hands at $555.50 a metric ton, up $5.00 from Tuesday’s settlement.

Source: Market Watch