02 December 2015 – Oil dipped on Wednesday as an unexpected rise in US stockpiles worsened oversupply concerns, stemming from expectations that Opec will keep its output target unchanged at a policy meeting on Friday.
US crude was trading down 20 cents at $41.65 per barrel early on Wednesday, down more than 10% since the start of November.
Internationally traded Brent was 13 cents lower at $44.31.
“The market is a little bit skittish ahead of the Opec meeting, it is going to be very range bound between now and Friday,” said Ben Le Brun, market analyst at Sydney’s OptionsXpress.
Traders are also closely watching the European Central Bank’s policy review on Thursday, which is expected to result in new stimulus measures.
“Quantitative easing programs around the world have pushed up prices of risk assets, so it certainly won’t do potential upside for oil too much harm,” said Brun.
But oil traders remained focused on growing stockpiles.
They also ignored a weaker dollar, which retreated from a multi-month high on Wednesday after US manufacturing contracted in November for the first time in three years. A weak dollar tends to push up crude prices as it makes greenback-dominated contracts cheaper for holders of other currencies.
A 1.6 million barrels rise in US crude inventories last week to 489.9 million took centre stage, especially because it contrasted with analysts’ expectations for a decrease of 471,000 barrels.
Oil production already exceeds demand by 500,000-2 million barrels per day. The glut has seen prices tumble by more than 60% since June 2014, but Opec is not expected to budge from its stance of keeping output high to defend market share against producers such as Russia and North America.
“Saudi Arabia is in no mood to cut output, especially as a collective cut remains elusive amidst rising financial stress among other major Opec and key non-Opec members,” consultancy Energy Aspects said.
Traders are also keeping an eye on US non-farm payroll data due Friday. Strong data will strengthen expectations of the Federal Reserve raising US rates this month – the first upward move in nearly a decade.
An interest rate hike will likely push up the dollar, weighing on oil prices.
But oil markets are getting some support from Chinese demand as the world’s biggest energy consumer takes advantage of low prices to build up strategic reserves.