LONDON — Brent crude oil fell below $55 a barrel for the first time since May 2009 as record supplies from Iraq and Russia bolstered speculation the global glut that drove crude into a bear market will persist.
An employee walks across snow past illuminated petroleum cracking towers at the Lukoil-Nizhegorodnefteorgsintez oil refinery, operated by OAO Lukoil, in Nizhny Novgorod, Russia, on Dec 4, 2014. (Bloomberg photo)
Futures slid as much as 4.3% in London, extending a loss of 5.1% last week. Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, plans to boost crude exports to a record this month, the Oil Ministry said. Russia’s output rose to a post-Soviet high in December, according to preliminary Energy Ministry data.
“Another day, another record,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by e-mail. “We are already in the regions of fundamental exuberance to the downside.”
Brent slumped 48% last year, the most since the 2008 financial crisis, as Opec resisted calls to cut output amid a battle with US shale producers for market share. The 12-member group, which supplies about 40% of the world’s crude, pumped above its target for a seventh consecutive month in December, according to a Bloomberg News survey.
Brent for February settlement declined as much as $2.40 to $54.02 a barrel on the London-based ICE Futures Europe exchange, the lowest since May 6, 2009. It was at $54.24 as of 1.59pm London time. The European benchmark grade traded at a premium of $3.52 to West Texas Intermediate.
WTI for February delivery dropped as much as $2.14, or 4.1%, to $50.55 a barrel in electronic trading on the New York Mercantile Exchange. That’s the lowest level for the US benchmark since May 1, 2009. The volume of all futures traded was about 30% more than the 100-day average for the time of day.
Glut continues
“Rising supply, slowing refinery demand, rising dollar, it is the same factors driving prices,” Ole Hansen, head of commodity strategy at Copenhagen-based Saxo Bank A/S, said by e-mail. “With news from Iraq and Russia about increased supply, then the expectations about the glut just continue to grow.”
Iraq plans to expand crude exports to 3.3 million barrels a day this month, Asim Jihad, a spokesman at the Oil Ministry in Baghdad, said by phone yesterday. The country exported 2.94 million a day in December, the most since the 1980s, he said.
Russian oil production rose 0.3% in December to a post-Soviet record of 10.667 million barrels a day, according to preliminary data published Jan 2 by CDU-TEK, part of the Energy Ministry.
Saudi discounts
Saudi Arabia may narrow discounts in its official February crude selling prices to buyers in Asia in the coming days amid speculation that demand will rise because of the plunge in benchmark prices, according to 12 of 15 traders and refiners in a Bloomberg News survey through today. Three respondents forecast price differentials to be unchanged.
The world’s biggest oil exporter offered its Arab Light grade at the biggest discount in at least 14 years for January. The move was followed by Iraq, Kuwait and Iran, prompting speculation that Middle Eastern producers were protecting market share amid increased shipments from Latin America, North Africa and Russia.
Venezuela meeting
Brent will trade at $80 a barrel this year, down from an earlier estimate of $104, amid increases in global spare capacity and rising inventories, Sanford C. Bernstein said in an e-mailed report today. The researcher also reduced its prediction for 2016 to $90 from $109 previously.
Reweighting of commodity indexes for 2015 will result in an extra 52,952 lots bought for Brent, Societe Generale SA said in an e-mailed report today. The purchases will be spread between April and May contracts.
Venezuela President Nicolas Maduro is travelling to China for talks on financing and energy and expects to visit other Opec nations to develop an oil-pricing strategy, he said on state television yesterday. Mr Maduro plans to meet Chinese President Xi Jinping as he seeks to “confront” the decline in Venezuela’s income that has forced his government to review “all investment plans” and look for new ways to obtain foreign currency.