Crude Oil Rally Runs Out Of Steam, Drags Asian Markets

Crude oil prices recouped from a 13-year low during early trade Thursday but soon lost its gains, after back-to-back declines this week. International benchmark Brent rose above $28 before retreating to $27.81 as investors anxiously await the release of U.S. storage capacity data later in the day.

Asian markets heaved a temporary sigh of relief, with all major indices opening higher Thursday following the stabilization of oil prices. However, the markets reversed gains in all Asian markets except Australia as industry watchers cautioned that availability of large storage space for crude oil in the U.S. and Asia would discourage oil producers from limiting production, Reuters reported.

As oil prices lost their early gains, stock markets followed suit. The Nikkei 225 in Japan closed 2.4 percent lower and the Hang Seng Index in Hong Kong was trading down by about 1.5 percent. In China, the Shanghai Composite Index was down 1.09 percent while the Shenzhen Composite exchange was trading 2.01 percent lower.

South Korea’s KOSPI Index was lower by about 0.3 percent and the S&P BSE Sensex in India lower by about 0.5 percent after trading in positive territory Thursday morning. Australia’s S&P/ASX 200 Index was off the day's highs but closed 0.42 percent higher.

ANZ bank told Reuters crude oil prices were likely to come under pressure after the release of U.S. Energy Information Administration's official data about available storage capacity for crude oil.

Brent crude futures rose as much as 37 cents to $28.25 per barrel while West Texas Intermediate (WTI) crude futures was up 31 cents from its previous close on Thursday’s brief rally before it lost steam.

Oil prices have lost nearly 75 percent of their value in the past 18 months amid increased U.S. shale oil output and OPEC's refusal to cede market share by cutting output. Market sentiment was further hurt as oil producers braced for a jump in oil exports from Iran after Western sanctions against the country were lifted.

“The message is clear: equilibrium in oil markets is now about supply; demand is a sideshow,” analysts at DBS told the Financial Times.

Despite a warning by the International Energy Agency that the market is at risk of drowning in oversupply, estimates show that oil producers are continuing to pump an extra 1-2 million barrels of crude oil than required.

The supply overhang, coinciding with a slowdown in China, has kept broader market sentiment jittery about growth in the near term.