U.S. Oil Undercuts $30 For First Time Since Dec. ’03

It’s gotten so bad in the oil world that investment banks are practically falling over themselves to predict just how low crude will go. It has to stop somewhere, right?

On Tuesday the price fell another 3 percent to $30.44 a barrel, its lowest level in 12 years.

Two years ago, oil was approaching $100 a barrel.

Now, amid oversupply and a discount war between exporters that sees anywhere between half a million and 2 million barrels of crude produced every day in excess of demand, refiners can cherry-pick the grades that best suit their facilities – heavy or light, sweet or sour.

Meanwhile, February gasoline futures fell 2.82 cents, or 2.5%, to $1.0848 a gallon, the lowest close since February 2009.

United Arab Emirates (UAE) Energy Minister Suhail Al Mazroui expects a recovery in plummeting oil prices before the end of the year. Societe Generale SA cut its average 2016 Brent forecast to $42.50 a barrel from $53.75 on Monday, while Bank of America Corp. trimmed its forecast to $46 a barrel from $50.

But layoffs across the oil industry are mounting, and oil company bankruptcies are expected to soar. BP announced yesterday that it plans to cut 4,000 jobs worldwide, 600 of which will be from its North Sea oil operations, citing “toughening market conditions”.

China said it more than doubled the size of its strategic crude oil reserves between November 2014 and the middle of previous year, building inventories at a rate exceeding analyst estimates of the country’s stockbuilding.

Ed Morse, global head of commodities for Citi Research, said at the conference new production from Iran as sanctions are removed in the next month or so will cause ripple effects on global oil markets.

While that means share prices of refiners with little or no crude production are outperforming primarily crude producers, much could hinge on China’s economy and Beijing’s policy of tax breaks for small auto buyers.

U.S. crude stocks fell by 3.9-million barrels in the week to 480.071-million, compared with analysts’ expectations for an increase of 2.5-million barrels, data from industry group the American Petroleum Institute (API) showed on Tuesday.

However, the more bullish camp said there is little room for prices to drop further and that a rebalancing in supply and demand is around the corner.

The analysts argue that while the global supply glut has dragged oil below $60 per barrel, the stronger dollar accounts for the difference between a $35 per barrel and $55 per barrel price.

Motorists are saving every time they fill up.

Airliners, as big users of jet fuel, have been recording record profits, while shippers and other businesses are also saving from cheaper energy.

However, since oil is paid for in dollars, a simultaneous appreciation in USA currency has made oil more expensive elsewhere around the world, fueling the slump further. And for businesses, “I can hire more people or buy new equipment because I no longer have to spend that money on energy”.

“Saudi Arabia has been traditionally the solo controller of oil prices in the last 30 years, cutting its production volume whenever the prices decrease”.

Oil extended a 70 percent drop since June 2014 as volatility in Chinese markets fueled a rout in global equities and US stockpiles remained more than 120 million barrels above the five-year average.