Oil prices hit fresh lows on Thursday, approaching the key $40 (36 euros) a barrel mark after a surprise increase in US inventories added to concerns of a supply glut.
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Leading members of the Organization of Petroleum Exporting Countries are maintaining output, while Citigroup Inc. predicts crude may slide to as low as $32 a barrel, a level last seen during the global financial crisis.
“The only silver lining we are seeing coming from the United States is that refining rates remain high and that crude production continues to fall”, Daniel Ang at Singapore-based Philip Futures said.
Weaker-than-expected Chinese manufacturing data and a sharp declines in the U.S. stock market also spurred worries about the outlook for energy demand. It was the lowest close since January 13.
The drop in oil price is impacting energy companies’ performance as they invested heavily in drilling operations for the past few years.
U.S. crude production fell 47,000 barrels to 9.348 million barrels a day that week. However, there is no indication they will reverse their policy of keeping production wide open to defend market share, delegates told Reuters this week.
The level of US crude stockpiles increased last week by 2.6 million barrels or 0.6% to 456.2 million barrels. Angola plans to ship 1.83 million barrels a day in October, the most since November 2011, according to a preliminary loading program obtained by Bloomberg.
Light Sweet Crude Oil futures for October delivery, the most actively traded contract, plummeted USD1.85 or 4.3%, to settle at USD41.27 a barrel on the New York Mercantile Exchange Wednesday.
Weakening demand in the Far East coupled with increasing U.S. imports have really supported todays prices.
“Couple that with the stronger dollar and weakness out of China and it’s a recipe for lower prices ahead for crude”, Jarvis said. A combination of growing supplies and slow growth in the world economy weakened demand and made for a big drop in prices in the second half of 2014, a trend that’s resumed this summer. Gasoline is averaging $2.63 a gallon, compared with $3.44 a year ago.
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Western Canadian crude, a heavier type of crude that is more hard to refine, is now trading in the $20 range, provoking analysts to speculate on the commodity trading as low as as $15 a barrel in the not too distant future.
