Crude prices rose but then fell slightly in Asia on Thursday, driven by short-covering, but any gains were expected to be temporary as an expanding global glut continues to spook investors.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in March recently traded at $ 28.34 a barrel, down $ 0.01 in the Globex electronic session. March Brent crude on London's ICE Futures exchange were recently down $ 0.01 to $ 27.87 a barrel.
Overnight, Nymex prices tumbled below $ 27 a barrel, down more than 80% from record highs reached in July 2008. The plunge underscores the intensifying risk aversion in the market as supply continues to outpace demand. Both crude grades have lost nearly 30% since the beginning of the year.
A major force behind the decline in prices over the past 19 months has been the resilience of U.S. shale-oil producers, many of whom maintained production levels as prices dropped. In 2015, U.S. production of crude reached an average of about 9.4 million barrels a day, higher than the average 8.7 million barrels produced daily in 2014, according to the Energy Information Administration.
However, U.S. production is expected to pare back to about 8.7 million barrels a day toward the end of this year and 8.5 million barrels a day in 2017, the agency said.
In the near-term, some traders expect prices to come under pressure after EIA releases its official U.S. weekly crude stockpile data later Thursday, which will likely show an increase from the week earlier.
The American Petroleum Institute, an industry group, said for the week ended Jan. 15, the U.S. crude stockpile likely climbed by 4.6 million barrels. Analysts polled by pricing agency Platts estimated an increase of 2.9 million barrels and Citi expects growth of 2 million to 3 million barrels.
"The data for last week may highlight one of the near-term challenges facing the U.S. crude market with winter cycle of seasonal refinery maintenance now under way, contributing to a further accumulation of crude oil inventories," said Tim Evans, a Citi commodity analyst.
The downward pressure on oil prices is also driven by the fear that as China's economy slows, the country's demand for oil will drop. Earlier this week, China said its economy grew 6.9% in 2015, the slowest pace in 25 years.
Emerging markets—including China—are crucial for oil-demand growth in the coming decades. In developed nations, many economists say, oil consumption is near or past its peak as consumers and companies have become more fuel-efficient.
But not all observers are spooked by China's slowdown.
"Sure the China's economy has slowed down, but it is still growing at 6.9%, which means its oil demand will not be too shabby," said Barnabas Gan, a commodity analyst at OCBC.
Write to Jenny W. Hsu at jenny.hsu@wsj.com
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