Oil prices edge up but supply glut woes to continue

The Dollar Business Bureau

Oil prices have marginally increased in Asia on Tuesday after decreasing 2% on Saturday. This is mainly due to a weak dollar. However, concerns of excess supply are likely to weigh on the global markets and traders expect a further fall in the oil prices.

Brent crude futures were trading at $44.80 per barrel, which is 8 cents more when compared to their previous close. US West Texas Intermediate (WTI) crude oil stood at $43.16, which is only 3 cents higher per barrel. On Saturday, Brent crude has seen its lowest in the last couple of months, while WTI has witnessed the lowest for the past 3-4 months.

After touching up to $50 per barrel in June, crude oil prices have fallen around 15% in the past few weeks due to output disruptions, weak global demand and the end of the US holiday driving season.

Recently, the US Energy Information Administration announced that the US inventories have tumbled lesser than expected. The supply of petrol had surged up during the peak season for demand in the US. This has spooked the crude oil traders globally.

According to the traders, increased prices were a correction after sharp reductions earlier. This is also a reflection of the dip in the US dollar against other currencies from the peak seen in March. Crude oil is traded in dollars, so whenever US currency gets cheap, oil imports would see a potential demand as shipments turn cheap for other currency countries.

Industry analysts point out that the oil markets seem to be in a clumsy mood. The ongoing fears of oversupply are encouraging hedge funds to liquidate their recent record bullish position, said Matt Smith, Director - Commodity research at US-based crude oil tracker ClipperData.

Hedge funds have been highly liquidating in both futures and options of crude oil. This has put a downward pressure on the oil prices in the past few weeks. Liquidation of old long positions is now replaced by the short positions. It makes money from low prices because fund managers would attempt to benefit from the decreasing prices.

Hedge funds and money managers reduced the net long position in Brent and WTI futures and options by 31 million barrels to reach 453 million in the last week.