Oil skids toward 11-year low as IEA warns of worse glut
BLEAK OUTLOOK FOR NEXT YEAR AS INDUSTRY STRUGGLES WITH FALLING DEMAND
Oil prices extended their free fall 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 per cent on the day and 12 per cent 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 December 4 meeting of the Organisation of 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 per cent, at $37.93.
Brent’s session low was $37.36 — barely a dollar above month. Natural gas rigs were trimmed 7 to 185, bringing the total down by 28 to 709.
The Permian Basin in West Texas, home to the largest amount of US oilfield activity, fell the most, dropping 15 rigs and leaving 194 working.
“This is exactly what we thought would occur,” Matt Marietta, an analyst at Stephens Inc. in Houston, said in a phone interview. since April 2010. The market pared some losses on that.
The IEA, which advises developed nations on energy, warned that demand growth was starting to slow.
Demand growth
“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.
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.