Crude falls on supply worries
Oil prices dropped sharply Wednesday as traders assessed new government and private reports on production, oil in storage and industry capital spending.
Analysts surveyed by Bloomberg ahead of U.S. inventory data due for release Thursday predicted on average that U.S. inventories rose for the second consecutive week, to 456.3 million barrels. That’s almost 100 million barrels above the five-year seasonal average.
Other reports out Wednesday also pointed to continuing difficulty for the industry, as the government predicted U.S. production will fall until next summer, but not enough to cut into a global glut that’s sending prices down. And the British bank Barclays projected that lower prices will prompt oil companies to trim 2015 and 2016 capital spending budgets.
The rising inventory was a bearish signal for U.S. benchmark West Texas Intermediate crude, which fell $1.79 to $44.15 a barrel in Wednesday trading on the New York Mercantile Exchange. International benchmark Brent lost $1.94 to $47.58 a barrel in European trading. The
falling oil prices affected Wall Street, as many energy stocks fell.
Oil companies are cutting spending in response to the lower prices. A Barclays survey of 175 companies found that they plan to cut $12.6 billion to $18.9 billion in capital spending in North America next year, on top of a $68.3 billion reduction this year.
That could drop North American oil investments as low as $106.9 billion next year, from $194.1 billion in 2014 and $125.8 billion this year, Barclays said.
The U.S. Energy Information Administration said in its monthly oil outlook that U.S. crude output fell by 140,000 barrels from August to July. Daily production will probably average 9.2 million barrels this year and 8.8 million barrels in 2016, the Energy Department Agency said, cutting both forecasts by 100,000 barrels from its estimate last month.
The government analysts said they don’t anticipate output will start to grow again until after August 2016, with daily production climbing back to 9 million barrels a day by the end of 2016.
The agency said that despite the slowdown, the global oil glut isn’t shrinking fast and that crude consumption could decline next year — aggravating the oversupply. The EIA said it hasn’t changed its projections on the price for Brent crude, however, which it expects to average $54 a barrel this year and $59 a barrel in 2016.
The agency lowered its estimate of the growth in daily global consumption of oil and liquids in 2016 by 200,000 barrels to 1.3 million barrels, because China and its trading partners in Asia appear to be facing sluggish economic growth and lower manufacturing orders. Total global demand averaged 92 million barrels a day last year.
The Energy Information Administration also expects the Organization of the Petroleum Exporting Countries to bolster its daily crude production by 800,000 barrels this year and keep it flat next year, with Iraq putting out the most new crude. If international sanctions against Iran are lifted next year, the EIA said, Iran could send 300,000 barrels a day into the market.
Asia is one of OPEC’s major markets, and Saudi Arabia accounted for almost a fourth of the oil that went to Asia’s seven largest importers in the first six months of this year, according to the Energy Information Administration.