Oil prices edged up off 11-year lows on Tuesday, though a bearish outlook for 2016 and weaker profits for refining oil products kept a lid on gains. Brent crude for January delivery touched $36.05 a barrel earlier in the day, a penny above a July 2004 low that will be its next resistance level, before rebounding to $36.46 a barrel at 11:38 am EST (1638 GMT).
-- Market to rebalance in fourth quarter 2016 -Goldman Sachs
US West Texas Intermediate (WTI) crude futures flipped to a premium to Brent briefly, before retreating to a slight discount at $36.45 a barrel. The US benchmark touched its lowest level since 2009 at $33.98 in the previous session. Traders squared positions ahead of a traditional period of low liquidity between Christmas and New Year's Day as they covered short positions, bolstering US crude.
"It's somewhat of a defensive posture and a reasonable posture before the beginning of the year," said John Saucer, vice president at Mobius Risk Group in Houston. There's a cap on how far the upward momentum can go, though, said Brian LaRose, technical analyst at ICAP. "Unless you can get back above $38.75, I can't entertain the possibility for a bottom unfolding," he said.
From a technical standpoint, the price movement downward from the highs in mid-October indicate that the current lows could still be breached, he said. Gasoline margins coming off this week and persistently weak middle distillate margins are also weighing on the oil price complex, Olivier Jakob from Petromatrix consultancy said. Expectations of another weekly build-up in US crude stocks added to general bearish sentiment. Analysts, on average, reckon that crude stocks were up 1.4 million barrels in the week ended December 18, according to a Reuters poll taken ahead of weekly inventory reports from industry group American Petroleum Institute (API) and the US Department of Energy's Energy Information Administration (EIA).
Meanwhile Saudi Arabia, the world's largest oil exporter, said it had shot down a ballistic missile that was heading towards the city of Jizan, where a new refinery and oil terminal are under construction. Saudi Aramco said all its facilities in the area were "in safe and normal operation." Concerns about global crude supplies continuing to outstrip demand next year limited price gains. "We view the oversupply as continuing well into next year before rebalancing in the fourth quarter 2016," Goldman Sachs said in a report circulated on Tuesday.
"Our base case remains that the global oil stock build will on aggregate remain shy of storage capacity, although the storage buffer has once again narrowed." Goldman analysts said that a higher-than-expected 1.5 million barrel a day global market imbalance in this quarter is likely to extend into the first half of 2016 because of milder- than-usual weather weighing on demand. Energy Aspects also expects the market to rebalance towards the end of next year but said in a report Tuesday that "the pace of inventory drawdown will depend on Opec output." The weather provided a further bearish element as an unusually mild start to the winter in the northern hemisphere weakens demand for heating oil.
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