Oil hits new seven-year low on glut warning

The Paris-based agency delivered more bad news to battered oil producers, who have seen prices slump below $40 (U.S.) per barrel and hit their lowest point since the deep global recession of 2008-09.

US crude futures were at $36.52 per barrel, down 24 cents and just above Thursday’s bottom of $36.38 – the benchmark’s lowest mark since February 2009.

Between 0.5 and 2 million barrels of crude oil are being produced in excess of demand every day, creating a glut that has pulled down prices by nearly two-thirds since 2014 and which is threatening a situation known as “tank-top”, in which the market runs out of available storage facilities.

On the New York Mercantile Exchange, WTI crude for January delivery fell 0.72% to $36.50 a barrel.

OPEC is displaying hardened resolve to maintain sales volumes even as prices fall in an oversupplied market, the IEA said Friday in its monthly report.

Opec warned that its “oil demand forecast for 2016 is subject to considerable uncertainties, depending on the pace of economic growth, development of oil prices, and weather conditions, as well as the impact of substitution and energy policy changes”. OPEC’s daily output has eclipsed its production ceiling of 30 million barrels per day by at least 1 million for the majority of the year.

The prospect of higher rates boosts the greenback, which in turn makes dollar-priced crude more expensive for buyers using weaker currencies. Iraq, though, increased production by 248, 000 barrels per day in November, representing a spike of 247.5% from its level in October.

US oil companies are clearly hurting, but OPEC’s strategy to defend its market share by forcing others to close wells is causing pain for the cartel’s members too. “But OPEC showed last week it’s a paper tiger in that it won’t do anything to prevent supply growth”, said Michael Hewson, chief market strategist at CMC Markets. “Indonesia is an important country for Saudi Arabia, a rising global economy; we would like to be a part of the growth of Indonesia”, said CEO of Saudi Aramco, Amin H Al Naseer. The IEA said it expects a decline in non-OPEC production in 2016, as USA light tight oil shifts into contraction, and it that further spending cuts could spur deeper output declines.

OPEC’s output was 31.695 million b/d in November, up 230,100 b/d from 31.465 million b/d the previous month, according to the latest OPEC report.

World oil demand is anticipated to have risen 1.53 million barrels per day in 2015 to average 92.88 million, it said.