The price of internationally traded oil fell below $65 for the first time in more than five years on Wednesday after Opec lowered forecasts of demand for its crude to their lowest level in a decade.
The report by Opec, the producers’ cartel, underlined the looming supply glut facing oil markets amid surging US shale output and weakening global demand, raising hopes of a boost for consumers but piling further pressure on to oil companies.
It worsened the already bearish outlook for oil, which has fallen 43 per cent since mid-June. Brent, the international benchmark, fell as much as 4.9 per cent to $63.56, the lowest level since July 2009. West Texas Intermediate, the US benchmark, also fell after US crude stocks unexpectedly rose.
“For prices, the path of least resistance is down,” said Michael Wittner, analyst at Société Générale
As the price rout continued, there was further evidence on Wednesday that cheaper crude was forcing oil companies around the world to rethink their spending plans.
BP announced a sweeping cost-cutting programme that will lead to $1bn in restructuring charges over the coming year and the loss of several thousand jobs across the group. It also signalled it would trim its guidance for capital expenditure for 2015.
The price decline threatens to be particularly painful for US shale operators, who require a relatively high oil price to break even compared to lower-cost producers in the Middle East.
On Wednesday, two heavily-indebted US shale operators, Oasis Petroleum and Goodrich Petroleum, announced steep cuts in their planned capital spending for next year. Meanwhile ConocoPhillips, the US oil and gas major, said earlier this week that it would slash capital spending by 20 per cent in 2015.
But cheaper oil has been a boon for airlines and other industries that consume petroleum products. By early trading in New York, shares of United Continental were up 4 per cent and American Airlines was 3 per cent stronger. US airline stocks are up 74 per cent since the start of the year.
In its latest monthly report, Opec said demand for its crude would be 28.92m barrels a day in 2015, which is the lowest level since 2004 and represents a downward revision of about 300,000 b/d from previous estimates.
It is also well below the existing 30m b/d output target the cartel decided to stick to at its Vienna meeting last month, despite calls from some countries for a production cut to put a floor under plunging prices.
That decision suggested Opec had relinquished its traditional role of modifying production to balance supply and demand, and was letting prices do the job instead.
The figures indicate there will be a surplus of 1.13m b/d in 2015, and 1.83m b/d in the first half.
But Opec gave no sign that it will cut output. “Why should I cut production?” Ali Al-Naimi, the Saudi oil minister, told reporters in Lima. “This is a market and I’m selling in a market. Why should I cut?”