Oil down 35 per­cent

Enterprise - - International news -

Oil prices rose in de­cem­ber but fell as much as 35 per­cent for the year af­ter a race to pump Middle East crude pro­duc­ers and U.S. shale oil drillers cre­ated an un­prece­dented global glut that may take through 2016 to clear.

Global oil bench­mark Brent and U.S. crude’s West Texas In­ter­me­di­ate (WTI) fu­tures rose be­tween 1 and 2 per­cent on the day on short-cov­er­ing and buy­ing sup­port in a thinly traded mar­ket ahead of the New Year.

But for 2015, both bench­marks fell dou­ble-dig­its for a se­cond straight year as Saudi Ara­bia and other mem­bers of the once-pow­er­ful Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries (OPEC) again failed to boost oil prices.

The U.S. shale in­dus­try, mean­while, sur­prised the world again with its abil­ity to sur­vive rock-bot­tom crude prices, churn­ing out more sup­ply than ex­pected, even as the sell-off in oil slashed by two-thirds the num­ber of drilling rigs in the coun­try from a year ago.

The United States also took a his­toric move in re­peal­ing a 40-year ban on U.S. crude ex­ports to coun­tries out­side Canada, ac­knowl­edg­ing the in­dus­try’s growth.

“You do have to tip your hat to the U.S. shale in­dus­try and their on­go­ing abil­ity to drive down costs and hang in there, al­beit by their fin­ger­nails,” said John Kil­duff, a part­ner at Again Cap­i­tal, an en­ergy hedge fund in New York.

Brent crude set­tled up 82 cents at $37.28 a bar­rel, re­bound­ing from a near 11-year low of $36.10 hit ear­lier in the ses­sion. For the last month, it was down 16 per­cent and for the year, it fell 35 per­cent. In 2014, Brent lost 48 per­cent.

WTI rose 44 cents to $37.04 a bar­rel. It slid 11 per­cent in De­cem­ber and 30 per­cent for the year, af­ter a 46 per­cent loss in 2014.

The im­me­di­ate out­look for oil prices re­mains bleak. Gold­man Sachs has said prices as low as $20 per bar­rel might be nec­es­sary to push enough pro­duc­tion out of busi­ness and al­low a re­bal­anc­ing of the mar­ket.

Adding to oil’s woes, floods across the Mid­west­ern United States were threat­en­ing re­finer­ies and pipe­lines from Illinois to Louisiana, po­ten­tially swelling the glut of do­mes­tic crude at a time when stock­piles were al­ready at record highs.

A mild win­ter so far in the North­ern Hemi­sphere due to the El Niño weather phe­nom­e­non has also slashed de­mand for heat­ing oil. U.S. heat­ing oil prices fell 40 per­cent for a se­cond year in a row.

“We have brim­ming oil in­ven­to­ries in Europe,” Bjarne Schiel­d­rop, chief com­mod­ity an­a­lyst at SEB in Oslo, said. “And our pre­dic­tions are that oil in­ven­to­ries in Asia are go­ing to get closer to sat­u­ra­tion in the first quar­ter.”

Mor­gan Stan­ley said in its out­look for next year that “head­winds (are) grow­ing for 2016 oil.”

The bank cited on­go­ing in­creases in avail­able global sup­plies, de­spite some cuts by U.S. shale drillers. “The hope for a re­bal­anc­ing in 2016 con­tin­ues to suf­fer se­ri­ous set­backs,” it said.

Brent prices briefly hit a 2004 bot­tom below $36 a bar­rel last month, ef­fec­tively wip­ing out gains from a decade-long com­mod­ity su­per-cy­cle sparked by China’s once-in­ex­orable growth and en­ergy de­mand boom.

The down­turn in oil has caused pain across the en­ergy sup­ply chain, in­clud­ing to ship­pers, pri­vate oil drillers and oil-de­pen­dent coun­tries from Venezuela and Rus­sia to the Middle East.

An­a­lysts es­ti­mate global crude pro­duc­tion ex­ceeds de­mand any­where be­tween half a mil­lion and 2 mil­lion bar­rels a day. This means even the most ag­gres­sive es­ti­mates of ex­pected U.S. pro­duc­tion cuts of 500,000 bpd for 2016 would be un­likely to fully re­bal­ance the mar­ket.

Oil be­gan fall­ing in mid-2014 as surg­ing out­put from OPEC, Rus­sia and U.S. shale pro­duc­ers out­paced de­mand. The down­turn ac­cel­er­ated at the end of 2014 af­ter a Saudiled OPEC de­ci­sion to keep pro­duc­tion high to de­fend global mar­ket share rather than cut out­put to sup­port prices.

OPEC failed to agree on any pro­duc­tion tar­gets at its Dec. 4 meet­ing in Vi­enna, ce­ment­ing its de­ci­sion to pro­tect mar­ket share, as the world braces for the re­turn of Ira­nian crude ex­ports to the mar­ket af­ter the lift­ing of Western sanc­tions against Tehran.

Rus­sia is also show­ing no signs of rein­ing in pro­duc­tion, prompt­ing traders, hedge fund man­agers and other spec­u­la­tors to es­tab­lish record high ac­tive short po­si­tions in the mar­ket that would profit from fur­ther crude price falls.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.