Oil prices fell on Dec 17. Thursday with Brent showing no improvment from the 11-year lows as fresh supply builds at delivery points for US crude futures added more to the global glut.

There was a reported inventory increase of 1.4 million barrels at the Cushing, Oklahoma delivery hub for the US crude's West Texas Intermediate (WTI) futures.

“Bearish fundamentals are hanging over the oil markets like storm clouds, with no break in sight or relief in the near future,” noted Chris Jarvis, founder of Caprock Risk Management in Maryland, reports Reuters.

Narrowing price gap

Meanwhile, the gap between benchmark US crude oil prices and global rates is fast disappearing for the first time since the rise of the shale oil boom as a sudden reversal and indicating a market flux.

On Dec 14, Monday, US West Texas Intermediate for delivery settled just 6 cents below global Brent crude, which was the narrowest gap since 2010. It was trading at more than US$1 (AU$1.4) a barrel barely two days ago.

But oil traders have mixed views on the sudden shift in the heavily traded spread. For many, it is a signal that US domestic oil market will grow tighter despite a global glut. They say it may spur a renewed rise in US imports and wipe out the cost advantage of US refiners, who are making billions of dollars by processing cut-price domestic crude.

Export impact

However, a section of dealers see the spread as responding to signs from Washington that the 40-year old ban on exporting US crude will be scrapped for a consensus on broader tax and spending legislation. As the ban goes, it would provide a new outlet for domestic supplies that rose to nearly 10 million barrels per day (bpd) thanks to shale drilling and was outstripping domestic refiners' capacity for processing all.

But the paradox is that US oil output has started falling in the past few months, after it hit a 43-year peak in April 2015 of 9.6 million barrels per day. But the decline has been slower and shallower to make an immediate impact on the prices. In the first week of Dec, the Energy Information Administration said it expected the US supply to fall to 570,000 bpd in 2016, more than what was forecast in November.

"We're finding the 'oil glut' is more a foreign crude problem, not so much in the U.S., where refineries are still running 16.5 million barrels per day," noted Carl Larry, an analyst with Frost & Sullivan.

OPEC Optimism

Meanwhile, OPEC stated that global crude oil prices at seven-year lows will not be a permanent fixture and would swing upwards in as little as a year. OPEC Secretary-General Abdullah al-Badri said on as the low-price cycle cuts in output from some producers.

"I've been in the oil business all my life. I saw six cycles - I saw very high price, I saw low price, and this is one of them. This will not continue," Badri said at the first OPEC-India Energy dialogue in New Delhi.

"In a few months or a year or so this will change," he said.

Oil prices fell by about two-thirds since mid-2014, with Brent crude touching its lowest level since 2004 and price hovering just above US$36 (approx. AU$50) a barrel.

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