Oil price drops to 11-year low over glut of supply
Global oil prices hit their lowest level in more than 11 years yesterday, while US crude flirted with seven-year lows on more signs that swelling global supply looked set to outpace tepid demand again next year.
Global oil production is running close to record highs and, with more barrels poised to enter the market from nations such as Iran and Libya, the price of crude is set for its largest monthly percentage decline in seven years.
The strength of the dollar, the currency used to set commodity prices globally, exacerbated the latest swings, but supply remains the main issue driving the market.
Brent's premium over US crude narrowed further as the market braced for the end of a 40-year ban on US crude exports.
US President Barack Obama signed a law on Friday that will end the ban.
US crude futures fell 53 cents at $34.20 by late afternoon yesterday after bouncing off an intraday low of $33.98.
Brent futures were down 61 cents at $36.27, falling as much as 2pc during the session to a low of $36.04 a barrel, its weakest since July 2004.
Brent has dropped nearly 19pc this month, its steepest fall since the collapse of failed US bank Lehman Brothers in October 2008.
"The fundamentals are pretty bearish," said Phil Flynn, an analyst at Price Futures Group in Chicago. "Warm temperatures are killing the markets right now and the oversupply is weighing on prices."
Heating oil futures fell to their lowest since July 2004 as US and European weather modes forecast warmer-than-expected weather through the year end.
While consumers have enjoyed lower fuel prices, the world's richest oil exporters have been forced to revalue their currencies, sell off assets and even issue debt for the first time in years as they struggle to repair their finances.
OPEC, led by Saudi Arabia, will stick with its year-old policy of compensating for lower prices with higher production, and shows no signs of wavering, even though lower prices are painful to its poorer members.
"With OPEC not in any mood to cut production... it does mean you are not going to get any rebalancing any time soon," Energy Aspects chief oil analyst Amrita Sen said.
"Having said that, long term of course, the lower prices are today, the rebalancing will become even stronger and steeper, because of the capex (oil groups' capital expenditure) cutbacks ... but you're not going to see that until end-2016."
Oil market liquidity usually evaporates ahead of the holiday period, meaning that intra-day price moves can become exaggerated.
Those moves may be further exacerbated by the expiration of the front-month WTI contract yesterday. (Reuters)