Oil nears 2015 low, analysts expect more worries ahead
LONDON/SINGAPORE: Oil prices edged closer to 2015 lows on Monday after OPEC’s meeting ended without a reference to its output ceiling and a stronger dollar made it more expensive to hold crude positions. Brent crude prices were down 53 cents at $42.47 a barrel, close to their 2015 trough of $42.23 and nearing more than sixyear lows. US crude was trading at $39.14 a barrel, down 83 cents.
The Organisation of the Petroleum Exporting Countries (OPEC) ended its policy meeting on Friday without agreeing to lower production. For the first time in decades, oil ministers dropped any reference to the group’s output ceiling, highlighting disagreement among members about how to accommodate Iranian barrels once Western sanctions are lifted.
Investors are betting on the oil price staying lower for even longer after OPEC’s decision to ditch a formal production ceiling. This could possibly harm the ability of US shale producers, among the casualties of OPEC’s strategy of pumping hard to retain market share, to lock in profitable prices for future deliveries.
“Oil is going to make lower lows and lower highs for the foreseeable future and, in terms of market reaction post-OPEC, I’m not surprised, but it does leave the door open for prices to fall,” Gain Capital analyst Fawad Razaqzada said.
Analysts at Barclays said the lack of an OPEC production target in its written announcement was a sign of discord.
OPEC’s output of more than 30 million barrels per day (bpd) has compounded an oil glut, pushing production of 0.5 million to 2 million bpd beyond demand.
“It means that there is a loss of confidence in the market after OPEC, and people expect low prices to last longer”, said Oystein Berentsen, MD of crude oil at Strong Petroleum in Singapore.
“Hence the back of the curve will be under pressure from producer hedging via selling the back of the curve to limit loss or lock in a small profit to reduce risk.”
Goldman Sachs said after the OPEC meeting that it expected oil prices to remain “lower for longer,” with a risk that oil prices could fall as low as $20 per barrel.
REUTERS & AFP