Oil Skids Towards 11-Year Low as IEA Warns of Worse Glut
New York: Oil
prices extended their freefall on Friday, flirting with 11-year lows, after the
International Energy Agency (IEA) warned that global oversupply of crude could
worsen next year.
Brent and US
crude's West Texas Intermediate (WTI) futures fell as much as 5 percent on the
day and 12 percent on the week as mild pre-winter weather and a plummeting US
stock market added to the toll on oil prices.
Oil traders
and analysts alike have been perplexed by oil's decline since the Dec. 4
meeting of the Organization of the Petroleum Exporting Countries which all but
abandoned price support for crude by removing OPEC's production ceiling in an
oversupplied market.
"It's
very tough to find a cause to get bullish here," said Peter Donovan,
broker at Liquidity Energy in New York.
"The
bearish IEA report has put further selling pressure on an already soft market.
The back months have actually been hit a bit harder than the fronts as the
report dispelled thoughts that a price recovery was on the not-too-distant
horizon."
Brent's front
month slipped below $38 a barrel for the first time since December 2008,
settling down $1.80, or 4.5 percent, at $37.93.
2004 LOW
BECKONS
Brent's
session low was $37.36 - barely a dollar above the $36.20 hit during the
financial crisis. If Brent falls below that level in the coming week, that will
be its lowest since mid-2004, when it traded at around $34 a barrel.
WTI's
front-month settled in the $35 territory the first time since February 2009.
The contract finished the session down $1.14, or 3 percent, at $35.62, after
hitting an intraday low at $35.35. WTI's financial crisis low was $32.40 in
December 2008.
A year ago,
Brent and US crude were trading at around $60 a barrel, and during early summer
2014, above $100. Now, WTI contracts through 2024 are under $60.
Friday's only
positive news was data showing US drillers have reduced the number of oil rigs
operating in the country for a 14th week out of 15, reaching the smallest
number since April 2010. The market pared some losses on that.
DEMAND SLOWING
The IEA, which
advises developed nations on energy, warned that demand growth was starting to
slow.
"Consumption
is likely to have peaked in the third quarter and demand growth is expected to
slow to a still-healthy 1.2 million bpd (barrels per day) in 2016, as support
from sharply falling oil prices begins to fade," the energy watchdog said
in its monthly oil report.
Crude prices
have fallen with little restraint since OPEC abandoned its output ceiling of 30
million bpd. Led by No. 1 crude exporter Saudi Arabia and other big Middle East
oil producers such as Iran and Iraq, the group pumped 31.7 million bpd in
November. That was more oil than in any month pumped by OPEC since late 2008.
"Brent
crude's renewed slide below $40 per barrel was the damning verdict on OPEC's
failure to agree on a number even for what is largely a notional output
target," London-based Capital Economics said in a note.
$20 OIL?
Banks such as
Goldman Sachs have said oil could fall to $20 if the world runs out of capacity
to store unwanted supply.
"The WTI
and Brent markets are trending at this point with no real interest from anyone
to buy," said Scott Shelton, broker and commodities specialist at ICAP in
Durham, North Carolina.
"The
forecast remains incredibly warm for the US That's a large drag on demand and
means less demand for distillates and more for export, which drags down the
rest of the world as well."
US weather
forecasts call for warmer-than-normal temperatures through Christmas that would
curb heating demand.
Gasoline's
premium to heating oil widened as the heating oil contract slumped 6 percent to
near 7-year lows while gasoline settled flat.
© Thomson
Reuters 2015
No comments