Oil prices drop as glut continues

Oil prices extended losses in Asia on Monday on fears that a global supply glut will last another year, with analysts saying the Paris climate deal likely will have no near-term effect on the commodity. The government is preparing to offer oil and natural gas contracts to investors next month.

Oil slumped last week to levels last seen during the global financial crisis, while speculators increased bets on falling USA crude prices to an all-time high after the Organization of Petroleum Exporting Countries this month effectively abandoned production limits.

Brent for January settlement was down as much as 49 United States cents, or 1.3 per cent, at US$37.44 a barrel on the London-based ICE Futures Europe exchange on Monday.

With crude prices on a tailspin, officials have taken new measures since previous year to cut costs further and make production more efficient, Karimi said. USA oil futures are down 36% so far this year amid worries over ample domestic supplies.

Crude oil for delivery in January on the New York Mercantile Exchange shed 12 cents, or 0.34%, to trade at $35.50 a barrel during USA morning hours.

Looking forward, the markets are likely to remain subdued until the result of the US Federal Reserve meeting is announced [on 16 December].”The precious metal complex remained under pressure with traders pricing in a US interest rate hike”.

“Nerves are fraying ahead of the Fed’s expected decision to lift US rates on Wednesday”.

On Friday, the Dow sank 1.8 percent and the S&P 500 lost 1.9 percent. Year-to-date, prices for both grades have fallen over 30%.

Oil fell below $35 a barrel in NY for the first time since 2009 as Iran reiterated its pledge to boost crude exports, bolstering speculation OPEC members will exacerbate the global oversupply.

The IEA, which monitors energy market trends for the world’s richest nations, said non-OPEC production rose by just 300,000 barrels a day in November.

The Manager Director of Iran’s Central Oil Fields Company Salbali Karimi told local media that Iran’s cost of production stood at around US$1.25 per barrel, in a clear sign it would increase output in any price scenario.

The Saudis said that output cuts won’t work unless big producers outside OPEC, including Russian Federation and Mexico, participate.

On Friday, the International Energy Agency had released a bearish report regarding crude oil markets, projecting low prices to persist till the end of next year.

“Oil prices fell to a seven year low this week as OPEC’s failure to agree on a target continues to reverberate through the markets”, analysts said.

A main cause for the drop was commentary from Iran reiterating the country’s intentions to ramp up output in the coming months, a move that will add to a global supply glut seemingly growing by the day.