US crude prices tumbled Wednesday to their lowest level in almost 13 years, as fears of a global economic slowdown continued to weigh and February futures contracts expired. The selloff brought WTI to its lowest level since September 2003.
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Nymex price for March delivery was down 75 cents at $28.83 a barrel. Analysts also attributed much of the bounce from under $28 a barrel to a brief short covering rally after oil prices crashed over 20 per cent this year, triggering a record volume of short positions in the week through January 12. Analysts say the decision is likely to bring down the price of oil further in the world market.
The crude oil market is expected to remain oversupplied until at least late this year, amid rising supply and unseasonably warm weather, the International Energy Agency said in its monthly report.
The International Energy Agency, which advises industrialized countries on energy policy, warned on Tuesday that the world could “drown in oversupply” of oil in 2016, with Iran’s exports piling into the excess.
The catalyst behind the early price surge was increased demand from China.
Most of Iran’s forecast production growth comes from Iran’s pre-existing crude oil production capacity that is now shut in, while the remainder comes from newly developed fields.
Meanwhile, integrated oil giants are also feeling the squeeze in their refining operations, which previously had enjoyed wide margins as costs for crude inputs fell. Global refining margins sank 34% in Q4, the steepest decline in eight years, according to data from BP.
Iran’s National Iranian Oil Company said it had ordered an increase in output of 500,000 barrels per day (bpd). Production including returning OPEC member Indonesia fell by 210,000 bpd to 32.18 million bpd in December, the report said, citing secondary sources.
Goldman Sachs said that Iran’s production would rise by 285,000 barrels per day (bpd) year-on-year in 2016 while BMI Research said the rise would by 400,000 bpd.
“The oil price puts stresses on oil exporters… but there is a silver lining for consumers worldwide, so it’s not an unmitigated negative”.
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The industrialized economies adviser based in Paris said that while the pace of increasing stock in oil eases during the second six months of 2016, as the supply from producers who are non-OPEC drops, unless something is done, the oil market could be oversupplied, pushing prices even lower.
