Brent oil rebounds from lows of below US$50

LONDON — Brent crude pared losses after dipping below US$50 a barrel for the first time since May 2009 yesterday amid signs of a continuing supply surplus.

Brent for February settlement added 55 cents to US$51.65 a barrel on the London-based ICE Futures Europe exchange at 10.05 am New York time. It had earlier touched US$49.66.

Crude slumped by 48 per cent last year, the most since the 2008 financial crisis, as the United States pumped at the fastest pace in more than three decades and the Organization of the Petroleum Exporting Countries decided to maintain its output ceiling.

The oversupply may take “months or years” to be absorbed, United Arab Emirates Energy Minister Suhail Al Mazrouei said.

“While we expect high-cost shale producers to be the first to cut production, this is unlikely to occur until the middle of 2015,” ANZ bank said in a note yesterday.

Besides high output, the low prices are also a result of sluggish demand, especially in Europe, which is still struggling with a debt crisis, and in Asia, where China’s growth is slowing and Japan is battling recession.

Despite Brent crude recovering to above US$50, analysts said the downside risks on oil prices remain in the near term.

“We aren’t seeing any clear indications of an improvement in market fundamentals yet to support the momentum in this reversal,” Mr Miswin Mahesh, energy market analyst at Barclays, said yesterday. “Often, after a big drop you get a rebound in prices.”

Mr Nobuyuki Nakahara, a former oil executive and former member of the Bank of Japan’s policy board, expects the steep fall in oil prices to continue.

“Oil prices are likely to keep falling due to slower Chinese growth and because the years of prices above US$100 before the recent plunge were ‘abnormal’ historically,” he said.

“I would not be surprised if the price falls to as low as around US$20 ... It is purely due to supply and demand,” he added. AGENCIES