Crude oil holds at 7-year lows as global glut persists

The OPEC report was the first since the cartel decided last week to raise its production ceiling to 31.5 million barrels of oil per day, to reflect the “current actual production”, a move that sent oil prices plummeting.

“For 2016, non-OPEC oil supply is now expected to contract by 380,000 barrels a day to average 57.14 mb/d, following a downward revision of 0.25 mb/d”, from last month’s report.

A year ago, Saudi Arabia pushed through an OPEC decision to defend market share instead of cutting output to support prices, hoping to slow growth in rival supplies such as USA shale oil.

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.

The oil price has fallen to a new seven-year low after the International Energy Agency (IEA) forecast a slowdown in growth in demand for oil.

“Much of the excess oil will be soaked up by 230 million barrels of new storage capacity additions, while US inventories are only 70 percent full”, the IEA added.

Opec producers pumped more oil in November than in any month since late 2008, nearly 32 million barrels per day.

Jefferies bank said that an “inventory overhang is likely to expand significantly through the first half of 2016 and will likely suppress oil prices in the near-term”.

United States benchmark West Texas Intermediate (WTI) for delivery in January was down 28 cents at $36.48 and Brent crude for January delivery was trading 26 cents lower at $39.47 at around 0240 GMT, their lowest levels since early 2009 during a global financial crisis.

OilPrice reports that ran’s return to the global oil market will only contribute to the oversupply of oil, especially since OPEC, of which Iran is a member, agreed at its third consecutive ministerial meeting on December 4 not to adjust its daily output to bolster prices. Brent oil could not keep pace with crude oil but declined never the less to 39.45 giving up 10 cents.

“In 2016 they will be able to supply 13.4 million bpd of oil to the world market, that is by 190,000 barrels less against 2015”.

World oil demand is anticipated to have risen 1.53 million barrels per day in 2015 to average 92.88 million, it said. “Oil demand growth in 2015 is amongst the strongest seen in the past twenty years”, says Neil Atkinson, from Lloyd’s List Intelligence.

Traders were also positioning themselves before the weekend and next Wednesday’s expected interest rate hike from the US Federal Reserve.

With the global economy struggling, China’s growth subdued and the dollar tipped to strengthen further, oil is expected to remain beaten down until possibly 2017.