Oil prices rally after huge selloff, future outlook weak

  • Reuters, London
  • Updated: Jul 07, 2015 15:25 IST

Global oil prices rallied on Tuesday after one of their biggest selloffs this year, but looked vulnerable to further falls after Chin's stock market too another hit, and Greece moved closer to exiting the eurozone.

Investors also kept a close eye on talks in Vienna over Tehran's nuclear programme that could lead to increased exports of Iranian crude at a time of global oversupply.

Brent crude for August was up 70 cents at $57.24 a barrel by 0810 GMT, following a more than 6% drop in the previous session. On Monday, Brent briefly touched $56.38, its lowest since April 10.

US crude traded at $53.10 a barrel, up 57 cents from the settlement on Monday, when it reached levels last seen in mid-April.

Despite the rally, most analysts were bearish. "Macroeconomic headwinds are rising - be it in the form of the collapse in the Chinese stock market, Greece's potential exit from the euro zone or a stronger dollar. So downside risk to Brent flat price persists," Energy Aspects said on Tuesday.

Consultancy FGE Energy also had a negative outlook. "Prices (for Brent) are effectively capped below $70 per barrel in the near term. Structurally, the market is about 1 million barrels per day oversupplied through end-2016," FGE Energy said in a note to clients.

The global oil glut could deepen if major powers and Iran reach a nuclear compromise that could end sanctions against Tehran and open up exports of crude.

"There is still downside potential for oil," said Olivier Jakob, energy markets analyst at Swiss consultancy Petromatrix.

"We hear an Iran nuclear deal may be about to be announced, and that is bearish if it means early sanctions relief and more Iranian oil sooner rather than later."

Expectations of Iranian exports resuming in 2016 have pulled down forward oil prices more than those closer to the present.

Since June 1, forward prices for Brent January 2017 delivery have fallen by $6.5 per barrel to around $63.40.

US crude for December 2016 fell to a new 2015 low of under $58 this week.

The outlook for oil demand looks grim as Greece struggles to remain in the euro and key consumer China faces a sharp stock market selloff.

Chinese equity markets have fallen 30% since June, prompting the government to resort to a series of support measures to stabilise shares. The measures have so far had only limited effect.

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