Oil stalls at $41 a barrel on US inventory gains and bearish sentiment

29 January 2009

Crude oil for March delivery was trading at $41 a barrel on the New York Metal Exchange (Nymex) in out-of-hours trading on 29 January, with prices down around $4 a barrel on the previous week as inventories in the US showed significant gains.

An inventory gain on crude stocks in the US, the world’s largest market, was tempered by an unexpected draw on gasoline supplies according to data from the US’ Energy Information Administration (EIA).

This came despite reports that the oil cartel Opec may discuss cutting production quotas further at its next meeting in March.The organisation plans to have cut production by 4.2m barrels from September 2008 to February 2009.

Although crude has largely stayed within a range of $40-45 a barrel on Nymex of late, analysts do not see the market as having found equilibrium given the ongoing negative global macroeconomic sentiment.

A spread of around $4 a barrel between March and April deliveries shows the weakness of prompt demand for crude, analysts say, with traders hoping to take advantage when the focus of trading moves to April deliveries in around three weeks.

One analyst at Barclays Capital describes the market as “dislocated” as a result, and not yet a fair representation of demand against global stocks.

Given widespread uncertainty over the global economy and oil demand, it is difficult to say when a clearer view will be possible, says another analyst, but stock gains and further recessionary data could see a more bearish market pitted against deeper Opec cuts.

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