Oil started 2015 on the back foot with a stronger US dollar and concerns about a supply glut sending prices to levels last seen in 2009.
A combination of rising output from US shale producers and weak demand in Europe and Asia sent Brent, the international oil marker, down almost 50 per cent last year, the second-biggest annual loss since trading in futures contracts started in the 1980s.
Those factors were evident on Friday as Brent fell below $56 a barrel, pressured by weak manufacturing data in China and Europe and news that output from some of the world’s largest oil producers continues to rise.
ICE February Brent fell as much as $1.85 to a five-and-a-half-year low of $55.48 a barrel, putting the contract on track for its sixth straight week of losses, although it later pulled back to $56.86.
Market watchers say there are few signs of the sell-off coming to an end.
“It’s difficult to see what the catalyst will be for a recovery in the short term,” said Amrita Sen, chief oil analyst at Energy Aspects, noting that investors had all but ignored falling production in Libya, an Opec member, and plans by some oil producers to cut capital expenditure.
“What the market wants and needs to see is inventories falling, but in the most visible places that isn’t happening,” Ms Sen added.
On Friday, Iraq, Opec’s second-largest producer, said December exports hit their highest level since 1980, averaging 2.94m barrels a day, while output in Russia, the largest exporter outside Opec, also broke records.
If Opec supply remains at current levels, analysts estimate the group will be pumping up to 2m b/d more than demand for its crude in the first half of the year.
In the past, Opec, which pumps more than a third of the world’s oil, has cut output in response to lower prices, but at its meeting in Vienna last month, members decided to hold output steady at 30m barrels a day, sending prices into a tailspin.
Indeed, Saudi Arabia, the cartel’s de facto leader, has said it will not cut production irrespective of price levels, “be it $40, $30 or $20 per barrel”, as it battles to retain market share.
The latest monthly US trade figures go some way to explaining its stance, say analysts. Only 1.37m b/d of supply from the Middle East reached US shores in October, down 250,000 b/d from September.
Exports from Saudi Arabia fell 180,000 b/d to just 826,000, which according to JBC Energy, a consultancy, is the lowest reading since 1988, apart from one month in 2009.
On the other side of the Atlantic, US oil prices were also lower on Friday.
WTI, the US oil benchmark, surrendered earlier gains to trade below $53 a barrel after Enbridge, a pipeline company that runs several lines across the US and Canada, restarted its North Dakota system after a fire.
Nymex February West Texas Intermediate fell as low as $52.03, also a five-and-a half-year low, before recovering to trade at $52.98.
Signs of the supply glut are also evident in the US. Figures released this week by the US Energy Information Administration showed rising inventories at Cushing, Oklahoma, the delivery point for US crude futures contracts. They rose 2m barrels, taking stocks back above 30m barrels for the first time since March.
“The emerging oversupply pattern in US crude and product markets is best illustrated when looking at total commercial stocks,” noted JBC Energy in a report. “Compared to last year’s path, the surplus ballooned by an incredible 60m barrels over the last five weeks.”
The Obama administration offered a measure of support to domestic crude producers this week with news that it will approve more exports of ultralight oil from the US shale drilling boom.
The US Bureau of Industry and Security said it will authorise more companies to sell oil condensate that has been processed through a basic distillation tower, giving them a green light for export without violating a four decade old US ban.
But it is not clear what appetite there will be for US condensates given the extent of oversupply in light sweet crude markets globally. Quality issues have also affected demand for this oil.
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