Oil Holds Loss as U.S. Stockpiles Counter Low-Price Saudi Budget

Oil Holds Loss as U.S. Stockpiles Counter Low-Price Saudi Budget
© 2015 Bloomberg News
Sharon Cho and Rakteem Katakey

(Bloomberg) — Crude held losses as investors weighed forecasts for falling U.S. stockpiles against a Saudi Arabia spending plan that reflects lower oil-revenue expectations for the world’s biggest exporter.

Futures gained 0.4 percent in New York following Monday’s 3.4 percent slide. U.S. inventories probably fell for a second week, according to a Bloomberg survey before government data Wednesday. Saudi Arabia’s 2016 spending plan assumes a Brent price of $37 a barrel, according to John Sfakianakis, a Riyadh- based economist at Ashmore Group Plc and a former government adviser. Oil traded Tuesday at about half the typical volume.

Crude is heading for its second annual decline amid a global supply glut that may deepen as OPEC effectively abandons output limits and Iran plans to raise production once sanctions are lifted. Brent, the benchmark for more than half the world’s oil, is poised to end 2015 with the lowest annual average price in 11 years, hurting energy-exporting countries and companies.

“Supply remains the key theme as we enter 2016 and Iran will attract most of the attention,” Ole Hansen, head of commodity strategy at Saxo Bank A/S in Copenhagen, said by e- mail. “We have a weaker dollar, which has helped cushion the fall in oil prices in the past week.”

Saudi Spending Cuts

WTI for February delivery gained 16 cents to $36.97 a barrel on the New York Mercantile Exchange as of 11:31 a.m. in London. Prices dropped $1.29 to $36.81 on Monday. Trading volume was 56 percent below the 100-day average.

Brent for February settlement gained 16 cents, or 0.4 percent, to $36.78 a barrel on the London-based ICE Futures Europe exchange. The contract dropped $1.27 to close Monday at $36.62. The European benchmark crude traded at a 20-cent discount to WTI.

Saudi Arabia will cut spending next year and reduce energy subsidies as revenue is projected to drop by more than 15 percent. Oil sales will make up about 70 percent of the country’s budget next year, according to Ashmore Group’s Sfakianakis.

‘Significant Step’

Iran has completed a “significant step” in fulfilling its nuclear commitments, according to U.S. Secretary of State John Kerry. As the Islamic Republic prepares to add more supply to the existing glut, hedge funds reduced bets on rising prices to a three-month low and kept bearish wagers near a record high in the week ended Dec. 22, data from the U.S. Commodity Futures Trading Commission show.

U.S. crude inventories probably decreased 2.25 million barrels to 482.5 million barrels in the week ended Dec. 25, according to a Bloomberg survey of eight analysts before data from Energy Information Administration. Distillate stockpiles may have increased by 750,000 barrels while gasoline inventories rose by 250,000 barrels, the survey showed.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 of its most-traded peers, was little changed Tuesday after dropping 0.6 percent last week. A weaker dollar makes commodities priced in the currency more attractive for investors. The Bloomberg Commodity Index, a gauge of 22 components, rose as much as 0.6 percent.

To contact the reporters on this story: Sharon Cho in Singapore at ccho28@bloomberg.net; Rakteem Katakey in London at rkatakey@bloomberg.net To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net; James Herron at jherron9@bloomberg.net Rachel Graham



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