Oil prices collapsed to their lowest since late November as investor worries about the world’s stubbornly persistent glut of crude erased most of the gains that followed last year’s OPEC’s output cut.
The slide worsened after OPEC delegates downplayed the chance that their group and other producing countries would deepen their output cuts when they meet on May 25. They did say current output cuts were likely to be extended.
The slide worsened after OPEC delegates downplayed the chance that their group and other producing countries would deepen their output cuts when they meet on May 25. Photo: Mikhael Holter
“While the cartel is expected to extend a self-imposed production cap by another six months, it will be a challenge to convince several non-OPEC members to follow suit,” said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics, “Persistent growth in US oil production … will also make extensions of the OPEC cap beyond 2017 unlikely.”
US crude fell $US1.93 or 4.1 per cent to $US45.89 per barrel, by midday in New York, Brent was down $US1.95, or 3.9 per cent to $US48.83.
Both contracts slid during the session to the lowest since November 30, the day OPEC agreed to cut supply. US crude fell as low as $US45.63, Brent touched $US48.54. Both were on track for their biggest daily per centage declines March 8.
“The market continues to hunt for a bottom,” said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut. “We’ve dropped to a five month low.”
Late last year, the Organisation of the Petroleum Exporting Countries (OPEC) and other producing countries announced oil output cuts of 1.8 million barrels per day (bpd) for the first six months of this year.
Even so, McGillian said, “We still have a near record overhang and signs of increasing production in areas of the world outside the producers that agreed to the cuts.”
Crude output has surged in the United States, with increasing rig counts for the past 11 months.
Weekly US government data on Wednesday showed crude stocks fell 930,000 barrels, less than half the 2.3 million barrel drop analysts had expected. Stocks stand just 7 million barrels off a record high.
Russia’s Energy Minister, Alexander Novak, said in written comments his country is inclined to extend its output cuts. But many in the market believe steeper cuts are needed to reduce the glut significantly.
“At some point, the market should recognise OPEC isn’t the most important player in the market any more,” said Commerzbank’s Eugen Weinberg, “That is non-OPEC, and, above all, US shale.”
US energy company shares fell along with crude on Thursday. Chevron was down 1.5 per cent, Exxon Mobil was down 0.7 per cent and EOG Resources was down 2.8 per cent.