Oil declined to the lowest level since 2008 in London amid estimates that OPEC’s decision to effectively scrap production targets will keep the market oversupplied.
Brent futures declined as much as 2.1 per cent for a sixth consecutive loss. The global surplus will persist at least until late 2016 as demand growth slows and the Organization of Petroleum Exporting Countries shows “renewed determination” to maximize production, the International Energy Agency said Friday. The group chose not to curb output at its Dec. 4 meeting.
Oil prices have slumped to levels last seen during the global financial crisis as a result of OPEC’s strategy to defend market share against higher-cost producers. The group’s production rose to a three-year high in November, it said in a report Thursday, as surging Iraqi volumes more than offset a pullback by Saudi Arabia.
“Too much oil is being produced at the moment,” analysts at Commerzbank AG led by Eugen Weinberg in Frankfurt said in a report. “There is unlikely to be any kind of ‘happy ending’ for oil prices this year.”
OPEC Supply
Brent for January settlement declined as much as 83 cents US to US$38.90 a barrel on the London-based ICE Futures Europe exchange, the lowest since Dec. 31, 2008, and traded for US$39.13 a barrel at 11:42 a.m. local time. It has decreased 9.2 per cent this week. The European benchmark crude was at a premium of US$2.82 to WTI.
West Texas Intermediate for January delivery was at US$36.32 a barrel on the New York Mercantile Exchange, down 44 cents. The contract dropped 40 cents US to US$36.76 on Thursday, the lowest close since February 2009. The volume of all futures traded was about 29 per cent above the 100-day average.
OPEC is displaying hardened resolve to maintain sales volumes even as prices fall in an oversupplied market, the IEA said Friday in its monthly report. While its policy is hitting rivals, triggering the steepest drop in non-OPEC supply since 1992, world oil inventories will likely swell further once Iran restores exports on the completion of a deal to lift sanctions, it said.
Spending Cuts
ConocoPhillips will reduce capital spending by 25 per cent next year to protect the highest dividend yield among major U.S. producers, the Houston-based company said Thursday. Its plan to cut spending to US$7.7 billion comes a day after Chevron Corp. disclosed a 2016 budget 24 percent smaller than this year’s. Together, the reductions by the two companies totalled US$10.9 billion, enough to rent 10 deepwater drilling rigs every day for more than half a decade.
Russia is preparing for the possibility that low crude prices are here to stay as competition between oil and other fuels such as natural gas intensifies. The nation sees no reason for crude to rise above $50 a barrel anytime soon and predicts it will remain in a US$40 to US$60 range over the next seven years, Deputy Finance Minister Maxim Oreshkin said at a Moscow conference organized by Vedomosti.
Seventeen of 30 analysts and traders, or 57 per cent, were bearish on WTI in a Bloomberg survey Thursday. Five respondents were bullish while eight were neutral.
—With assistance from Heesu Lee.
