Brent crude was on track for its lowest weekly close since 2008 on Friday as the International Energy Agency (IEA) warned global oil oversupply could worsen in the new year.
Advertisement
USA benchmark West Texas Intermediate (WTI) for delivery in January dropped US$1.14, or 3.1 per cent, to US$35.62, the lowest level since February 2009.
Despite a year of depressed prices, global oil output in November had grown to 1.8-million barrels per day above levels since in November 2014, when the Organization of Petroleum Exporting Countries (OPEC) rattled markets by refusing to cut production to cope with an over-supplied market.
In early trading on Friday, Brent crude was priced below US$40 with WTI around US$36 a barrel.
Many in the market are hopeful that the next report from a major producer or one of the governmental energy agencies will show the turnaround is starting, but Friday’s IEA report is just another sign it is not, he added.
OPEC left its 2016 oil demand growth forecast unchanged, predicting global demand would rise by 1.25 million bpd, marking a slowdown from 1.53 million bpd in 2015.
Crude prices had already been falling, weakened by warm weather that cut seasonal demand for heating oil and on a strong USA dollar given expectations of a Federal Reserve interest rate hike in December.
Chevron Corp., the second-biggest US oil company, said this week its 2016 budget will be 24 per cent smaller than this year’s plan.
All three major USA indexes sank over 1.5 percent, while crude prices plunged amid global oversupply.
French automaker Renault (Xetra: 893113 – news) lost 5.3 percent despite saying it had reached an agreement with its alliance partner Nissan and the Paris government to defuse tensions sparked by France raising its stake in the automaker. Gas prices are down 46 percent this year and 84 percent lower than their 2008 peak.
Oil prices are off dramatically since OPEC’s meeting last week, with Brent losing more than 8 percent. We see only limited upside potential until Iran starts to ramp up output assuming sanctions are eased next year.
“Oil prices haven’t stabilised yet so we can easily enter a wait-and-see mood”.
While Saudi Arabia believes to protect market share and to win non-OPEC producers the cartel has to keep pumping crude into market as it predicts the demand for oil will increase in the coming year. Heading into the meeting there was some news circulating that Saudi Arabia; the most influential player in the group was going to support a 1m per day barrel reduction in production.
The dollar fell against the euro as concerns over weak commodity prices and the yuan’s slump overshadowed solid USA retail sales data.
Advertisement
Jefferies bank said that an “inventory overhang is likely to expand significantly through the first half of 2016 and will likely suppress oil prices in the near-term”.
