Rig hands work at a Knox Energy Inc. oil drilling site in Knox County, Ohio, U.S. OPEC... Read More
Futures slid as much as 2.2 percent in New York, bringing losses for 2014 to 46 percent. U.S. guidelines allowing overseas sales of ultralight oil without government approval may boost the country’s export capacity and “throw a monkey wrench” into Saudi Arabia’s plan to curb American output, according to Citigroup Inc. U.S. crude inventories are forecast to rise to the highest level for this time of the year in three decades.
Oil’s slump has roiled markets from the Russian ruble to the Nigerian naira and squeezed government budgets in producing nations including Venezuela and Ecuador. It’s also boosted China’s emergency crude reserves and helped shrink fuel subsidies in India and Indonesia. OPEC has signaled it won’t cut supply to influence prices, instead preferring to defend market share amid an
unprecedented U.S. shale boom.
“The main reason for oil’s decline is OPEC sitting on the fence,” Giovanni Staunovo, an analyst at UBS AG in Zurich, said by e-mail. “To prevent an excessive inventory build-up, non-OPEC supply growth, particularly U.S. tight oil, needs to decelerate or stall temporarily.”
West Texas Intermediate for February delivery dropped as much as $1.19 to $52.93 a barrel in electronic trading on the New York Mercantile Exchange and was at $53.21 at 11:46 a.m. London time. The contract climbed 51 cents to $54.12 yesterday, gaining for the first time in four days. Total volume was about 40 percent below the 100-day average for the time of day.
U.S. Condensate
Brent for February settlement fell as much as $1.97, or 3.4 percent, to $55.93 a barrel on the London-based ICE Futures Europe exchange. That’s the lowest price since May 2009. Prices have decreased 49 percent this year. The European benchmark crude traded at a premium of $3.03 to WTI, compared with $12.38 at the end of last year.President Barack Obama’s administration opened the door for expanded oil exports by clarifying that a lightly processed form of crude known as condensate can be sold outside the U.S.
The publication of guidelines by the Commerce Department’s Bureau of Industry and Security is the first public explanation of steps companies can take to avoid violating export laws. It doesn’t end the ban on most crude exports, which Congress adopted in 1975 in response to the Arab oil embargo.
“While government officials have gone out of their way to indicate there is no change in policy, in practice this long-awaited move can open up the floodgates to substantial increases in exports by end-2015,” Citigroup analysts led by Ed Morse in New York said in an e-mailed report.
Shale Oil
The U.S. oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota. Production accelerated to 9.14 million barrels a day through Dec. 12, the fastest rate in weekly data that started in January 1983, according to the Energy Information Administration.Crude stockpiles probably expanded by 900,000 barrels in the week ended Dec. 26, rising from 387.2 million barrels a week earlier, according to the median estimate of nine analysts surveyed by Bloomberg News before today’s report from the Energy Department’s statistical arm.
“The oil market woke up from its hibernation in 2014 following several years of high but stable prices,” Ole Sloth Hansen, an analyst at Saxo Bank A/S, said by e-mail from Copenhagen. “OPEC has for now lost its role as the marginal producer who can adjust production to maintain stable prices. Instead this has fallen on U.S. producers.”
OPEC Policy
Global markets are oversupplied by 2 million barrels a day, according to Qatar’s Energy Minister Mohammed Al Sada. Saudi Arabia, which is leading OPEC to resist production cuts, has said it’s confident that prices will rebound as global economic growth boosts demand.OPEC, which pumps about 40 percent of the world’s oil, decided to maintain its output quota at 30 million barrels a day at a Nov. 27 meeting in Vienna, ignoring calls for supply reductions to support the market. The 12-member group produced 30.56 million a day in November, exceeding its collective target for a sixth straight month, a separate Bloomberg survey of companies, producers and analysts shows.
Economic Fallout
Saudi Arabia’s King Abdullah was admitted to a hospital for medical checks today, the state news agency reported. The king, 90, underwent back surgery in 2012. He has since appointed Prince Muqrin bin Abdulaziz as second in line to the throne after Crown Prince SalmanVenezuela’s President Nicolas Maduro vowed an economic “counter-offensive” to steer the OPEC nation out of recession as it struggled with the world’s fastest inflation. Ecuador, which relies on crude for about a third of its revenue, may cut next year’s budget by as much as $1.5 billion and seek additional financing if prices don’t stabilize, the Finance Ministry has said.
Oil’s collapse has also threatened to push Russia, the world’s second-largest crude exporter, into recession as its currency headed for its steepest annual slide since 1998. The economy, which relies on crude sales for almost half its budget, may shrink as much as 4.7 percent next year if oil averages $60 a barrel, according to the central bank. Russia must adapt to the reality of prices that could drop to as low as $40, President Vladimir Putin said on Dec. 18.
Hedge Funds
Hedge funds and other large speculators cut net-long positions on WTI for the first time in four weeks, reducing their holdings by 5 percent through Dec. 23, U.S. Commodity Futures Trading Commission data showed yesterday. Long wagers decreased the most since August.In China, a factory gauge for December fell to a seven-month low today, adding to signs of slowing growth in the world’s second-biggest oil consumer. The Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 49.6, down from 50 in November, indicating a contraction
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