Oil slides under $35 as glut worsens

HONG KONG: Oil traded below $35 a barrel and headed for a third weekly decline amid a worsening US supply glut and the first interest rate increase by the Federal Reserve in almost a decade.

Futures held losses in New York after closing Thursday at the lowest in almost seven years, and were down 2.1% this week. Crude stockpiles surged to 490.7 million barrels, the highest for this time of year since 1930, reported the Energy Information Administration (EIA). Goldman Sachs warned of “high risks” as prices may sink further with supplies swollen. The Fed decision bolstered the dollar, diminishing the investment appeal of commodities.

Oil is trading near levels last seen during the global financial crisis on signs the surplus will be exacerbated. OPEC abandoned output limits at a Dec 4 meeting while the White House announced its support Wednesday for a deal reached by congressional l eaders that would end the nation’s 40-year restrictions on crude exports.

“The major driver this week has been US dollar strength against a backdrop of ongoing refusal to respond rationally to the current market surplus on the supply side,” said Michael McCarthy, a chief markets strategist at CMC Markets in Sydney. “We’re just not seeing the normal production cuts we’d expect given the plummet in prices.”

West Texas Intermediate (WTI) for January delivery was at $34.83 a barrel on the New York Mercantile Exchange, down 12 cents, yesterday. The contract fell 57 cents to $34.95 on Thursday, the lowest close since February 2009. Total volume traded was about 6% above the 100-day average. Prices have dropped 35% this year, set for a second annual decrease.

Brent f or February delivery was seven cents higher at $37.13 a barrel on the London-based ICE Futures Europe exchange. It slid 2.1% this week.

Brent, the European benchmark crude, closed Thursday at a premium of 79 cents a barrel to WTI for February, the lowest in 11 months. The spread narrowed amid speculation the US plan to allow domestic oil to be shipped overseas may ease the nation’s oversupply. Crude inventories have expanded to 130 million barrels above the five-year seasonal average, EIA data showed Wednesday.

Oil-storage tanks could reach their capacity, pushing prices down to levels necessary to force an immediate halt to some production, said Goldman Sachs.

“There’s no one in the market willing to take a long position at the moment, making it difficult to remove the supply glut,” said Yoo Kyung Ha, a commodities analyst at Dongbu Securities Co in Seoul.

The Bloomberg Commodity Index, which measures the returns on 22 raw materials including oil and metals, closed Thursday at the lowest since March 1999. It’s down for a second week.