Oil set for biggest slump since 2008
Oil headed for the biggest annual decline since the 2008 global financial crisis as US producers and the Organisation of Petroleum Exporting Countries (Opec) ceded no ground in their battle for market share amid a supply glut.
Oil headed for the biggest annual decline since the 2008 global financial crisis as US producers and the Organisation of Petroleum Exporting Countries (Opec) ceded no ground in their battle for market share amid a supply glut.
Futures slid as much as 1.4 percent in New York, bringing losses for 2014 to 46 percent.
US guidelines allowing overseas sales of ultralight oil without government approval may boost the country’s export capacity and “throw a monkey wrench” into Saudi Arabia’s plan to curb American output, according to Citigroup Inc.
US crude inventories are forecast to rise to the highest level for this time of the year in three decades.
Oil’s slump has roiled markets from the Russian rouble to the Nigerian naira and squeezed government budgets in producing nations including Venezuela and Ecuador.
It’s also boosted China’s emergency crude reserves and helped shrink fuel subsidies in India and Indonesia.
Opec has signalled it won’t cut supply to influence prices, instead preferring to defend market share amid an unprecedented US shale boom.
“For this year, the biggest factor driving down oil prices was US shale production followed by a price war,” Hong Sung Ki, a commodities analyst at Samsung Futures Inc in Seoul, said by phone today. “The possibility of the US curbing output will be the only booster but nothing has been done, so we’re seeing a continuation of the price decline.”
West Texas Intermediate (WTI) for February delivery dropped as much as 74 cents to US$53.38 (RM186.73) a barrel in electronic trading on the New York Mercantile Exchange and was at US$53.53 at 1.36pm Singapore time.
The contract climbed 51 cents to US$54.12 yesterday, gaining for the first time in four days. Total volume was about 46 percent below the 100-day average.
US condensate
Brent for February settlement fell as much as US$1.03, or 1.8 percent, to US$56.87 a barrel on the London-based ICE Futures Europe exchange.
Prices have decreased 48 percent this year. The European benchmark crude traded at a premium of US$3.54 to WTI, compared with US$12.38 at the end of last year.
President Barack Obama’s administration opened the door for expanded oil exports by clarifying that a lightly processed form of crude known as condensate can be sold outside the US.
The publication of guidelines by the Commerce Department’s Bureau of Industry and Security is the first public explanation of steps companies can take to avoid violating export laws.
It doesn’t end the ban on most crude exports, which Congress adopted in 1975 in response to the Arab oil embargo.
“While government officials have gone out of their way to indicate there is no change in policy, in practice this long-awaited move can open up the floodgates to substantial increases in exports by end-2015,” Citigroup analysts led by Ed Morse in New York said in an emailed report.
Shale oil
The US oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.
Production accelerated to 9.14 million barrels a day through Dec 12, the fastest rate in weekly data that started in January 1983, according to the Energy Information Administration.
Crude stockpiles probably expanded by 900,000 barrels to 387.9 million in the week ended Dec 26, based on the median estimate of nine analysts surveyed by Bloomberg News before today’s report from the Energy Department’s statistical arm.
“What we’re seeing is that supplies from North America have really outpaced worldwide demand growth and as a result, we have a supply glut,” Andy Lipow, the president of Lipow Oil Associates LLC in Houston, said by phone. “And that of course has put pressure on prices over the last several months.”
Opec policy
Global markets are oversupplied by 2 million barrels a day, according to Qatar’s Energy Minister Mohammed Saleh Al Sada.
Saudi Arabia, which is leading Opec to resist production cuts, has said it’s confident that prices will rebound as global economic growth boosts demand.
Opec, which pumps about 40 percent of the world’s oil, decided to maintain its output quota at 30 million barrels a day at a Nov 27 meeting in Vienna, ignoring calls for supply reductions to support the market.
The 12-member group produced 30.56 million a day in November, exceeding its collective target for a sixth straight month, a separate Bloomberg survey of companies, producers, and analysts shows.
Saudi Arabia this month offered the widest discounts in more than 10 years to sell crude to Asia, a move followed by Iraq, Kuwait and Iran.
That prompted speculation that Middle East producers are protecting market share amid increased shipments from Latin America, North Africa, and Russia.
Economic fallout
Venezuela’s President Nicolas Maduro vowed an economic “counter-offensive” to steer the Opec nation out of recession as it struggled with the world’s fastest inflation.
Ecuador, which relies on crude for about a third of its revenue, may cut next year’s budget by as much as US$1.5 billion and seek additional financing if prices don’t stabilise, the Finance Ministry has said.
Oil’s collapse has also threatened to push Russia, the world’s second largest crude exporter, into recession as its currency headed for its steepest annual slide since 1998.
The economy, which relies on crude sales for almost half its budget, may shrink as much as 4.7 percent next year if oil averages US$60 a barrel, according to the central bank.
Russia must adapt to the reality of prices that could drop to as low as US$40, President Vladimir Putin said on Dec 18.
In China, a factory gauge for December fell to a seven-month low today, adding to signs of slowing growth in the world’s second biggest oil consumer.
The Purchasing Managers’ Index (PMI) from HSBC Holdings Plc and Markit Economics was at 49.6, down from 50 in November, indicating a contraction.
The Asian nation will account for about 11 percent of global demand in 2015, compared with 21 percent for the US, projections from the International Energy Agency in Paris show.
- Bloomberg
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Oil set for biggest slump since 2008
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