By Georgi Kantchev
Oil prices started the week deep in negative territory on
expectations that a sustained recovery is still a long way off.
U.S. crude snapped a seven-week losing streak last week after
bullish comments by an international energy watchdog. But analysts
said they see little evidence that the combination of oversupply
and sluggish demand that has pummeled prices since last summer is
abating.
Brent crude for March delivery fell 2.2% to about $49 a barrel
on London's ICE Futures exchange. On the New York Mercantile
Exchange, light, sweet crude futures for delivery in February
traded at $47.56 a barrel in recent trade, down 2.3% from Friday's
settlement.
Over the weekend, J.P. Morgan became the latest bank to slash
its forecast for oil prices this year. The bank cut its average
Brent crude price forecast for this year to $49 a barrel from $82,
saying that oil prices could trough in March at an average of $38 a
barrel.
Oil markets rallied on Friday after the International Energy
Agency lowered its forecast for supply increases this year. The
agency also said "signs are mounting that the tide will turn" for
oil prices in its closely watched monthly market report.
Analysts, however, said the short-term outlook remains
bearish.
"Despite a nearly 60% fall in oil prices since mid-2014, oil
market balances remain weak, with prospects of a recovery looking
dim until the latter months of 2015," Barclays analysts said in a
report.
The significant oil surplus, which J.P. Morgan estimates to be
1.6 million barrels a day in the 93 million barrels a day global
market, comes on the heels of a boom in U.S. shale oil production.
In a bid to protect its market share, the Organization of the
Petroleum Exporting Countries has repeatedly declined to cut its
own output, which has also added to the global oil glut.
"We see significant oil oversupply with risk that Brent falls
below $40 a barrel in the near term should the oil market not be
able to accommodate the surplus," J.P. Morgan said.
Investors this week will look to Frankfurt, where the European
Central Bank is expected to launch its quantitative easing program.
Analysts expect a weaker euro to weigh on dollar-denominated
commodities like oil.
Despite the bearish signals, some see light at the end of the
crude tunnel.
United Arab Emirates' oil minister Suhail Mohamed Faraj
al-Mazrouei said on Monday that low crude oil prices are unlikely
to last in the long-term.
"I doubt it is going to last for very long because I'm a
believer in sustainable development in the oil sector and that
sustainable development cannot be achieved at the current prices,"
he said.
Nymex reformulated gasoline blendstock for February--the
benchmark gasoline contract--fell 0.8% to $1.3479 a gallon, while
ICE gas oil for February changed hands at $474 a metric ton, up
$1.75 from Friday's settlement.
Eric Yep contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com
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