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Brent futures slumped as much 3.3 percent to its lowest since May 2009 in London. West Texas Intermediate, the New York-traded grade, dropped below $55 for the first time in five years. U.S. drillers are benefiting as costs fall almost as quickly as prices, according to Goldman Sachs Group Inc. OPEC shouldn’t be expected to cut output while other producers continue to expand, the United Arab Emirates energy minister said.
Crude oil slumped about 45 percent this year as the Organization of Petroleum Exporting Countries sought to defend market share amid a U.S. shale boom that’s exacerbating a
global glut. The group, responsible for 40 percent of the world’s supply, will refrain from curbing output, U.A.E. Energy Minister Suhail al-Mazrouei said on Dec. 14.
“We need to see more evidence that that some production will stop and there’s less oil coming into the market before confidence can return,” Thina Saltvedt, an analyst at Oslo-based Nordea Markets, said by phone. “Until then, prices can continue to drop.”
Contract Expiry
Brent for January settlement, which expires today, dropped as much as $2.04, to $59.02 a barrel on the London-based ICE Futures Europe exchange. It traded at a premium of $4.96 to WTI, compared with $5.15 yesterday. The more-active February contract was down $1.82 at $59.39.ICE’s Brent futures contract is based on the underlying physical price of four North Sea oil grades. Saudi Arabia, Iraq and Kuwait are among nations to sell some of their crude at premiums or discounts to Brent.
West Texas Intermediate for January delivery fell as much as $1.81 to $54.10 a barrel in electronic trading on the New York Mercantile Exchange. It decreased $1.90 to $55.91 yesterday. The volume of all futures traded was about 79 percent above the 100-day average. Prices are set for the biggest annual loss since 2008.
Brent, the benchmark for more than half the world’s oil, may decline to $50 a barrel in 2015, a Bloomberg survey of analysts showed. Prices need to drop further before producers will begin dealing with the global glut, said five out of six respondents who gave a reason.
OPEC Decision
OPEC’s decision at a Nov. 27 meeting to not to reduce a production target of 30 million barrels a day prompted speculation that the group is willing to let crude slide to a level that would slow U.S. output.The 12-member group, led by Saudi Arabia, pumped 30.56 million a day in November, exceeding its target for a sixth straight month, according to a separate Bloomberg survey of companies, producers and analysts. It’s next scheduled to meet in Vienna on June 5.
The U.S. oil boom has unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota. While producers last week idled the most rigs in two years, that was almost entirely for vertical machines, not the horizontal drillers used for shale output, Goldman said in a report yesterday.
Production expanded to 9.12 million barrels a day through Dec. 5, data from the Energy Information Administration shows. That’s the highest rate in weekly records that started in January 1983.
In China, a preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.5 for December. That’s the lowest in seven months, missing the median estimate of 49.8 in another Bloomberg survey and below last month’s 50.0. Readings of less than 50 indicate contraction.
The Asian nation is the world’s largest oil consumer after the U.S. and will account for about 11 percent of global demand next year, predicted the International Energy Agency in Paris.
“It seems like the market is no longer able to respond to the issue of oversupply,” Hong Sung Ki, a commodities analyst at Samsung Futures Inc. in Seoul, said by phone. “On the demand side, the global economy continues to slow while it takes time for U.S. shale production to pull back on the supply side.”
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