Oil prices drop as Opec output rises, Brent below US$40

The crude inventories US rigs Crude oil fell in Asia on Friday with expectations for any demand rebound thin in the face of significant over supply.

On Friday, both benchmark Brent crude and WTI were trading below 40 dollars a barrel as the supply of oil, which has outpaced demand, continued.

The IEA says consumption is likely to have peaked in the third quarter, and demand growth should peak at 1.2 million barrels a day next year as the effect of sharply falling oil prices will wear off. Exxon Mobil Corp., the world’s biggest oil company, has lost $11 billion of its value and PetroChina Co. more than $17 billion, according to data compiled by Bloomberg.

“With key benchmark commodity indexes below levels last seen in the 1990s, and Chinese demand set to remain weak, it is clear that commodity prices remain some way short of giving any evidence of bottoming out”, said Michael Hewson, chief market analyst at traders CMC Markets UK. Brent traded down about 1.6% at $39.09.

The IEA, an energy monitor, said low prices are taking a toll on supply but producers haven’t yet scaled back enough to make a dent in stockpiles. Production rose to a three-year high in November, the group said in a report yesterday, as surging Iraqi volumes more than offset a pullback by Saudi Arabia. With U.S. output starting to fade, OPEC left policies more or less in place during last week’s regular meeting in Vienna.

“OPEC crude output edged 50,000 barrels per day higher in November to 31.73 million barrels per day”.

Overnight in New York, West Texas Intermediate crude oil futures fell to a new low seven-year low of about $36.13 per barrel.

Oil prices have tumbled this month after to OPEC failed to impose a ceiling on its output. Vehicle sales were up 20 percent in November from a year earlier to 2.5 million vehicles, the China Association of Automobile Manufacturers said. “US gasoline” gasoline prices were the only bright spot on the petroleum complex, rallying on concerns over a refinery outage and possible cuts in production. Iran could ramp up production by as much as 1 million bpd next year, as Western powers ease a wide range of economic sanctions against the Gulf state. Since reaching a 12-month high at 100.60 last week, the index is down by roughly 2.5%.

“The majority of investors still feel there will be an interest-rate rise next week, and that has always been a detriment to gold, because it strengthens the USA dollar, which is what gold is priced in”, James Cordier, the founder of Optionsellers.com in Tampa, Florida, said in a telephone interview.