Oil price extends overnight gains but excess supply lingers

Oil prices have extended a strong rebound in overseas markets on the back of investors’ covering of short positions, although oversupply worries remain.

The West Texas Intermediate (WTI) crude oil benchmark traded in Asia was up at 17 cents at US$29.7 a barrel this morning, 13.4 per cent higher than the 12-year low of US$26.19 seen earlier this week. The Brent international benchmark was also up 24 cents at US$29.49.

“Oil prices jumped 6.5 per cent overnight, finally displaying the sort of price action that may trigger a reduction in record speculative short positions,” Citi’s analysts Friday said in a note, adding the cumulative rebound from the low on Thursday amounts to almost 10 per cent.

“With the European Central Bank (ECB) delivering a more dovish than expected message and firing up expectations for more easing at the March meeting, and with reports yesterday that the Bank of Japan may be closer than assumed to easing further, this move up in oil prices has helped further reel in investor sentiment form the brink of panic.”

ECB president Mario Draghi hinted strongly the bank may ease monetary policy again amid softening inflation due to sharply lower commodities prices.

Still, analysts said the fundamental reason of oversupply behind the slump in oil will linger for much of the year given Iran will be ramping up output after the United Nations lifted economic sanctions on it, increasing oversupply.