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Crude Oil Extends Drop Below $60 as IEA Cuts Demand Forecast

Friday, 12 Dec 2014 02:40 PM

(For more on oil’s decline, click EXT5 )

(Bloomberg) -- Benchmark U.S. oil prices extended losses below $60 a barrel as the International Energy Agency cut its global demand forecast for the fourth time in five months.

West Texas Intermediate crude is poised for a weekly decline of 12 percent while Brent has lost 10 percent. The IEA reduced its estimate for oil demand growth in 2015 by 230,000 barrels a day, the agency said in a report today. U.S. output, already at a three-decade high, will continue to rise in 2015, the IEA said.

“In the short term, supply is still stronger than demand,” said Gareth Lewis-Davies, a London-based analyst at BNP Paribas SA. “We are going to see further inventory builds in the first half, hence the realization of further pressure on oil prices.”

Both benchmarks have collapsed about 20 percent since Nov. 26, the day before the Organization of Petroleum Exporting Countries agreed to leave its production limit unchanged at 30 million barrels a day. Saudi Arabia, Iraq and Kuwait, the group’s three biggest members, this month deepened discounts on shipments to Asia, bolstering speculation that they’re fighting for market share.

WTI for January delivery dropped $2.18, or 3.6 percent, to $57.77 a barrel at 1:46 p.m. on the New York Mercantile Exchange after touching $57.34, the lowest since May 2009. Total volume was 48 percent above the 100-day average for the time of day. Prices have decreased 41 percent this year.

‘Negative Momentum’

Brent for January settlement slid $1.81, or 2.8 percent, to $61.87 a barrel on the London-based ICE Futures Europe exchange after reaching $61.35, the lowest since July 2009. Prices are down 44 percent in 2014. Brent traded $4.10 higher than WTI on the ICE, up from $3.73 yesterday.

The IEA, the Paris-based adviser to 29 nations, boosted projections for supplies outside OPEC in 2015 by 200,000 barrels a day, forecasting output will expand by 1.3 million barrels a day to 57.8 million a day. Production rising faster than demand could strain some nations’ ability to store oil by the middle of next year, it predicted.

The IEA cut projections for the amount of crude OPEC will need to provide next year by 300,000 barrels a day to 28.9 million. OPEC gave the same forecast, the lowest since 2003, in its monthly report on Dec. 10.

“We are in for lower prices for the foreseeable future,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “The Saudis don’t want to make any kind of cut whatsoever. You are really getting into a price war.”

Collective Target

OPEC’s 12 members pumped 30.56 million barrels a day in November, exceeding their collective target for a sixth straight month, a Bloomberg survey of companies, producers and analysts showed.

Saudi Arabia, the biggest OPEC producer, has resisted calls for a production cut. The global oil market will correct itself, Oil Minister Ali Al-Naimi said Dec. 10 in Lima.

While Venezuela backs calls for an emergency OPEC meeting, the country hasn’t officially requested one, an official with Venezuela’s Foreign Ministry, who asked not to be named in line with ministry policy, said today.

Production in the U.S. expanded to 9.12 million barrels a day through Dec. 5, the fastest rate in weekly records that started in January 1983, data from the Energy Information Administration show.

Shale Production

The U.S. oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota.

Low oil prices may slow U.S. shale production, Ian Taylor, chief executive officer of Vitol Group, said in an interview yesterday at the Platts Global Energy Outlook Forum.

“You begin to think that maybe not this year, but maybe next year, you will see perhaps less growth in U.S. production if the price stays where it is,” he said.

U.S. oil drillers idled the most rigs in almost two years this week. Rigs targeting oil dropped by 29 to 1,546, the lowest level since June and the biggest decline since December 2012, Baker Hughes Inc. said on its website today.

Gasoline futures dropped 1.4 percent to $1.6015 a gallon after falling to $1.5912, the lowest since May 2009. Retail gasoline, averaged nationwide, slid to $2.60 a gallon yesterday, the lowest since December 2009, according to Heathrow, Florida- based AAA, the largest U.S. motoring group.

--With assistance from Grant Smith in London and Jonathan N. Crawford in New York.

To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Richard Stubbe, Stephen Cunningham

© Copyright 2017 Bloomberg News. All rights reserved.

   
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Friday, 12 Dec 2014 02:40 PM
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