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Oil prices soften as demand recovery fails to materialise
Having spent much of November seeking momentum to keep a price surge above $80/b, bulls were trounced in the first 10 days of December as crude oil futures went into a sharp decline. By 11 December, the front-month light crude oil contract in New York was struggling to remain above $70/b. Industry analysts say the fundamentals – which remain bearish, as an expected recovery in demand for oil fails yet to make headway – are back in command of the market. The dollar's renewed strength has also helped to soften oil prices. If the US Federal Reserve raises interest rates this year, as some economists now predict it will, that could yet wipe more strength from the oil price. In the meantime, stocks and potential supplies of oil remain ample, both for the next few months of winter in the northern hemisphere and over the longer term. Opec's spare capacity of 6m b/d still hangs over the market. That being the case, the onus is on a demand recovery to take up slack. The US government's Energy Information Administration (EIA) expects Asian consumers to help prop up demand, but in the US the picture remains bleak, leading some analysts to suggest a structural shift in consumption has taken place. Last month, the EIA said demand for petroleum products was at its lowest since the summer and imports in November were 1.4m b/d lower than in the same month a year earlier. And what if oil demand starts to grow again next year in line with Opec's forecast for a 0.7m b/d increase? Floating storage on its own can account for the increment, notes Bill Farren-Price, an analyst at Medley Global Advisors. So much oil is being stored in tankers now that it could even meet half of the International Energy Agency's more bullish forecast for incremental demand next year, he notes. There is simply a lot of oil about. 
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