US crude oil holds near 2009 lows as global glut persists

Continued strong OPEC production and extra Iranian oil hitting the market next year will swell global inventories by 300 million barrels.

Prices are falling for a sixth day, the longest losing streak in nearly nine months, since the Organization of Petroleum Exporting Countries chose not to curb output at its December 4 meeting. “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. The group’s production rose to a three-year high in November, according to its monthly report, as surging Iraqi volumes more than offset a slight pullback by Saudi Arabia.

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

USA crude futures fell sharply on Friday plunging below $36 a barrel for the first time in more than seven years, after a bearish report from the International Energy Agency projected that global energy markets will remain vastly oversupplied for at least the immediate near future.

Oil services firm Baker Hughes (N:BHI) said Friday that US oil rigs fell by 21 to 524 for the week ending on December 4.

US crude futures were at $36.67 per barrel at 0029 GMT, down 9 cents from their last settlement, and only slightly above 2009 lows of $36.38 reached on Thursday.

The IEA said OPEC’s decision last week to impose no ceiling on its production apparently indicated a renewed determination to maximize low-priced OPEC supply. Since peaking above $100 a barrel 18 months ago, the front month contract for WTI crude has plummeted more than 80%.

He added that he estimates oil prices will average $50/barrel in 2016.

So, by the end of 2015 the demand for “black gold” in the world is expected to rise by 1.53 million bpd up to AZN 92.88 million barrels that is by 30,000 barrels more than the previous forecast.

The agency admits the Saudi-led policy of dumping oil and cutting prices seems to be working, taking a toll on non-OPEC supply.

“Companies must repeat the same size of cuts they’ve already announced to be able to cope with oil prices this low”, said Alexandre Andlauer, a Paris-based oil industry analyst with AlphaValue SAS.

The hard fact is that no oil producer outside the OPEC can survive such a low level, and within a short period, it will be forced to close down.

While non-OPEC supply remains stubbornly high this year, the IEA forecasts it will decline by 600,000 barrels per day in 2016, as US shale producers slash investment.