Oil extends losses in Asia on strong OPEC output

West Texas Crude also hit a seven year low, trading at $36.55 U.S.

With extra barrels coming from OPEC and no sizeable increase in demand for OPEC crude, the report points to a 860,000-bpd supply surplus next year if the group keeps pumping at November’s rate, up from 560,000 bpd indicated in last month’s report.

Crude prices have been in near free-fall the past week after the Organisation of the Petroleum Exporting Countries’ meeting on December 4 failed to impose a ceiling on output, virtually abandoning price support for the market.

The IEA expects oversupply to continue at least until late next year, suggesting prices will struggle to recover.

In London, Old Mutual insurance and banking firm slumped 10.62 percent to 155.70 pence with its close exposure to South Africa, where the surprise removal this week of Nhlanhla Nene as finance minister caused consternation. That means there will be little additional demand to sop up the growing glut of oil sloshing around the world in storage tanks and storage tankers.

The reason? The International Energy Agency suggested in a report that world oil demand should slow slightly next year.

The news sent prices on the Brent crude index to below $39, the lowest since December 2008.

Chevron Corp., the second-biggest US oil company, said this week its 2016 budget will be 24 percent smaller than this year’s plan. Stockpiles reached an all-time high last month, and supply from shale drillers is sending production toward a fifth straight annual record.

“But what is preventing the price from increasing – is that every time the price shows signs of moving up, OPEC and particularly Saudi Arabia introduces more oil thus exacerbating an already existing glut”, he continued. Cost of production for the United States is relatively higher, and if oil remains at lower levels, production might just not be sustainable.

“Commodity prices have plunged to new multi-year lows again, with crude oil and iron ore leading the way, and the latter at decade-lows”, wrote analysts at Italian bank UniCredit in a note to clients.

OPEC production, which has surged since the policy shift of November 2014 led by Saudi Arabia and Iraq, is far higher than forecast demand.

Non-Opec oil supply is estimated to shrink by 380,000 bpd to 57.14 million bpd in 2016, a downward revision for 250,000 from the previous estimate. USA oil production is expected to fall from its 9.3 million barrel per day average in 2015, to 8.8 million barrel per day in 2016. The dollar weakened, gold gained 0.4% and oil fell 3.5% to $35.47 a barrel – returning to 2008/2009 lows – down 11.3% for the week. This marks the tenth consecutive week of increase in crude supplies.

All of this further raises the stakes for next week’s Federal Reserve policy decision since the start of a policy tightening campaign will only further encourage investors to sell high-yield bond positions on yield sensitivity and rising default risks out of the energy sector amid fresh declines in crude oil.