The oil price rout deepened yesterday with Brent, the international crude marker, and its US counterpart West Texas Intermediate trading at five-and- a-half year lows.
After falling more than $3 a barrel in the previous session to levels last seen in the spring of 2009, ICE February Brent dropped a further $1.93 to $51.18 a barrel in afternoon trading. It reached a low yesterday of $50.96.
US benchmark crude, Nymex February West Texas Intermediate, resumed its fall below $50 a barrel to $48.08, down $1.96. The fall, to as low as $47.74 a barrel, came in spite of data that showed a further decline in active US oil rigs.
The count dropped by 17 to 1,482 rigs in the week to January 2nd, Baker Hughes data showed – the lowest level since March. It reached a record high of 1,609 in mid-October.
Supply surplus
Concerns about a supply surplus have accelerated amid a slowdown in global demand. Opec’s decision not to cut production as it tackles a rise in output from rivals outside of the cartel further lubricated the slide in prices, which many analysts say will continue in the coming months.
The market faces “more problems” this year, according to Morgan Stanley, with surging output in Russia and Iraq contributing to a surplus that Qatar estimates at two million barrels a day.
"The path of least resistance is lower," said Bill O'Grady, chief market strategist at Confluence Investment Management. "There is no bullish news. Opec refuses to cut production and there is no evidence of falling production outside of Opec."
Saudi Arabia’s King Abdullah said yesterday that the kingdom, Opec’s biggest producer, would tackle the challenges presented by the oil price rout “with a firm will”, according to a speech read on his behalf by Crown Prince Salman and broadcast on state television.
On Monday, Saudi Arabia lowered its selling prices for customers in Europe, in another demonstration of its determination to retain market share, according to some analysts.
Wiped out
“European differentials have been moved to the lowest level in several years, more than wiping out the increases that had been made in prior months,” said analysts at JBC Energy, a consultancy. “We assess Europe as the region where Saudi crude has been the least attractive relative to regional competitors recently.”
They noted the cuts came at a time when the physical crude market in Europe is already under pressure. Higher Russian exports and growing volumes from northern Iraq have only weighed on oil prices.
“However, it is not just the European crude market coming under pressure – physical crude markets globally are weakening in line with widening crude balances,” JBC added. “Indeed, the US crude market is also exhibiting signs of weakness in line with a sharp increase in crude stocks compared to year-ago levels over the last three weeks of 2014.” – Copyright The Financial Times Limited 2015/Reuters
