Brent crude prices fell to levels last seen in 2004 on Monday, dropping below the lows hit during the 2008 financial crisis on renewed worries over an oil glut. Global production remains at or near record highs and new supply looms from Iran and the United States.
Crude markets are also under pressure following last week’s U.S. interest rate hikes and on signs of growing US stockpiles even as more drilling rigs are deployed. Brent futures fell almost 2 percent and as low as $36.17 per barrel on Monday, the weakest since July 2004 and below the $36.20 mark reached on Christmas Eve 2008.
By 0717 GMT, Brent had edged back to $36.29, still down 59 cents from their settlement on Friday. US West Texas Intermediate (WTI) futures fell 36 cents to $34.37 per barrel, holding near last week’s 2015 lows.
Due to production far outpacing demand, the benchmarks have fallen more than two-thirds since mid-2014, when the rout began, and analysts said there was a rising risk of further falls. “The hope for a rebalancing in 2016 continues to suffer serious setbacks,” Morgan Stanley said on Monday. The bank cited US output being “more resilient than most models originally indicated”, the return of at least 500,000 barrels per day (bpd) from Iran in the first quarter of 2016, rising Libyan production and slowing demand growth as the main reasons for a continuing supply glut.
Beyond the unexpected gain in the US oil rig count by 17 to 541, the strength in the US dollar following last week’s interest rate hike - which makes oil more expensive for countries using different currencies - also weighed on prices.
“The resilient production data reflect rising U.S. crude stockpiles, which have surged to 491 million barrels, the most for this time of year since 1930,” ANZ bank said. The US glut adds to global oversupply as the main producers, Russia and the Organisation of the Petroleum Exporting Countries (OPEC), pump hundreds of thousands of barrels of crude every day in excess of demand.
Russian production surpassed 10 million bpd, the highest since the collapse of the Soviet Union, while OPEC output also remains near record levels above 31.5 million bpd. OPEC leader Saudi Arabia upped production from 10.226 to 10.276 million bpd between September and October.
Iraq’s oil minister Adel Abdul Mahdi told Reuters over the weekend that OPEC would stick to its December 4th decision to not limit production despite the drop in prices. More oil becoming available soon will add to the glut, with Iran hoping to ramp up sales in early 2016 once sanctions against Tehran are lifted. Iran will export most of its enriched uranium to Russia in coming days as it rushes to implement a nuclear deal and secure relief from international sanctions. This comes only days after the U.S. voted to lift a 40-year-old ban on crude exports, which could see some production released on the global market.
Reuters
