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Dhaka Tribune

Oil skids towards 11-year low as IEA warns of worse glut

Update : 12 Dec 2015, 06:41 PM

Oil prices extended their freefall on Friday, flirting with 11-year lows, after the International Energy Agency (IEA) warned that global oversupply of crude could worsen next year.

Brent and US crude’s West Texas Intermediate (WTI) futures fell as much as 5% on the day and 12% on the week as mild pre-winter weather and a plummeting US stock market added to the toll on oil prices. 

Oil traders and analysts alike have been perplexed by oil’s decline since the Dec 4 meeting of the Organization of the Petroleum Exporting Countries which all but abandoned price support for crude by removing OPEC’s production ceiling in an oversupplied market.

“It’s very tough to find a cause to get bullish here,” said Peter Donovan, broker at Liquidity Energy in New York.

“The bearish IEA report has put further selling pressure on an already soft market. The back months have actually been hit a bit harder than the fronts as the report dispelled thoughts that a price recovery was on the not-too-distant horizon.”

Brent’s front month LCOc1 slipped below $38 a barrel for the first time since December 2008, settling down $1.80, or 4.5%, at $37.93.

2004 Low beckons

Brent’s session low was $37.36 - barely a dollar above the $36.20 hit during the financial crisis. If Brent falls below that level in the coming week, that will be its lowest since mid-2004, when it traded at around $34 a barrel.

WTI’s front-month CLc1 settled in the $35 territory the first time since February 2009. The contract finished the session down $1.14, or 3 percent, at $35.62, after hitting an intraday low at $35.35. WTI’s financial crisis low was $32.40 in December 2008.

A year ago, Brent and US crude were trading at around $60 a barrel, and during early summer 2014, above $100. Now, WTI contracts through 2024 are under $60.

Friday’s only positive news was data showing U.S. drillers have reduced the number of oil rigs operating in the country for a 14th week out of 15, reaching the smallest number since April 2010. The market pared some losses on that. 

Demand slowing

The IEA, which advises developed nations on energy, warned that demand growth was starting to slow.

“Consumption is likely to have peaked in the third quarter and demand growth is expected to slow to a still-healthy 1.2 million bpd (barrels per day) in 2016, as support from sharply falling oil prices begins to fade,” the energy watchdog said in its monthly oil report.

Crude prices have fallen with little restraint since OPEC abandoned its output ceiling of 30 million bpd. Led by No 1 crude exporter Saudi Arabia and other big Middle East oil producers such as Iran and Iraq, the group pumped 31.7 million bpd in November. That was more oil than in any month pumped by OPEC since late 2008. 

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