Oil prices extend gains in Asia on stimulus pledge

Friday, Jan 22, 2016,11:55 IST By metrovaartha A A A

Singapore | Oil prices rose in Asia on Friday after the European Central Bank (ECB) signaled further stimulus measures to help the struggling eurozone economy, but analysts expect oversupply woes to limit gains.

Remarks by ECB chief Mario Draghi that possible additional monetary stimulus measures could come as soon as March lifted global markets and brought a measure of joy after weeks of painful losses. At around 0320 GMT, US benchmark West Texas Intermediate (WTI) for March delivery was up five cents at USD 29.58 barrel. Brent rose 13 cents to USD 29.38. Yesterday, Brent surged almost five per cent and WTI jumped more than four per cent after Draghi said there were no limits to how far we are willing to deploy our policy instruments in a signal that more stimulus could be coming. The black gold was also given a boost by a report showing US stockpiles did not rise last week as much as expected.

Earlier in the week, WTI sank to as low as USD 26.19 on Wednesday before closing at USD 26.55, the lowest level since May 2003. Brent also tumbled below USD 28, to its weakest point in more than 12 years. Crude prices have been hammered the past three weeks, falling about 75 per cent in 18 months on a supply glut, weak demand, overproduction and a slowing global economy.

Adding to downside pressure on the commodity is the return of Iranian crude into the market after the lifting of Western sanctions, offsetting any output cuts from other countries. Analysts said however it was still unclear if the rebound will be sustained based on the ECB moves alone as the world crude oil market remains oversupplied. However, Bernard Aw, market strategist at IG Markets in Singapore, said: If market participants piled into oil because of ECB stimulus hopes, then the upmove will not be sustainable given that the supply glut will re-exert itself sooner rather than later. He cautioned against oil prices have already hit bottom. It’s the end of the week, and for the past three weeks, the markets have wrong-footed analysts who say that we are going to see a rebound, Aw added. The National Iranian Oil Company has said it had ordered an increase in output of 500,000 barrels per day after the sanctions were removed Sunday.

BMI Research said the weakness in commodity prices since the start of the year reinforces its view that 2016 will be another tough year for commodity markets and that a sustained recovery will remain elusive.

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