The oil market's lousy fundamentals are starting to take their toll: US futures have fallen to a seven-week low under $75 a barrel. The world's largest energy consumer "looks like it's having a hard time sucking down oil", says Phil Flynn of PEGBest.
Overall US demand (for crude and oil products) is still down by 3.2% year-on-year and oil imports have sunk to their lowest level since 1990. Meanwhile refineries are running at just 80% capacity for only the second week this year.
November's decline in indices tracking both the manufacturing and services sector has fuelled worries that demand won't jump much anytime soon. There are now 100 million barrels of diesel and heating oil is being stored on ships offshore. "The current stocks afloat should meet most of next year's demand increase, which would leave onshore stocks basically unchanged from the current record highs," says Petromatrix's Oliver Jakob.
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The weak dollar has also been a key prop for oil prices, adds Deutsche Bank, but the correlation has loosened of late. And the dollar now looks set for a bounce. So investors should focus on oil's weak fundamentals. The price will fall back, with US futures averaging just $60 in Q3 of next year, reckons Deutsche. Meanwhile, Global Insight's Nariman Behravesh expects oil to drop to $65 by the spring.
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