Oil prices slide after IEA warns of further oversupply

Since OPEC spooked global markets by leaving its output quota unchanged at a closely-watched meeting last week, brent crude has fallen by almost 12%.

The IEA said OPEC’s decision last week to impose no ceiling on its output appeared to signal a renewed determination to maximise low-priced OPEC supply and drive out high-cost non-OPEC production regardless of price.

Overnight, crude futures plunged to fresh seven-year lows after OPEC reported on Thursday that it pumped oil at its highest level in more than three years in November, exacerbating longstanding concerns related to the excessive supply glut on global energy markets. The group chose not to curb output at its December 4 meeting.

OPEC has effectively been “pumping at will” since Saudi Arabia convinced fellow cartel members a year ago to refrain from supply cuts and defend market share against the rapidly growing production in USA shale oil fields and Russian Federation.

“Lower prices are clearly taking a toll on non-OPEC supply with annual growth shrinking below 0.3 million barrels a day in November from 2.2 million barrels a day at the start of the year”, the IEA said. Since the audacious move, market share from US producers has flattened while OPEC has turned market share losses into gains, according to a fourth-quarter report from the Federal Reserve Bank of Dallas.

Brent crude futures were down 50 cents at $39.23 a barrel at 1334 GMT, bouncing slightly from a session low of $38.90.

On other markets Shanghai slipped 0.9 percent, Sydney was 0.2 percent lower and Seoul sank 0.2 percent. The volume of all futures traded was 36 per cent above the 100-day average at 3.05pm in NY.

Light, sweet crude for January delivery recently lost 67 cents, or 1.8%, to $36.09 a barrel on the New York Mercantile Exchange. The contract dropped 11 per cent this week, the biggest weekly decline in a year.

On Thursday, both benchmarks reached their lowest settlement value since February 18, 2009. The European benchmark crude was at a premium of US$2.82 to WTI.

Energy companies led declines on the Standard & Poor’s 500 Index.

And the International Energy Agency is warning there could be worse to come throughout 2016.

“Oil consumption is likely to have peaked in the third quarter and demand growth is expected to slow to 1.2mn bpd in 2016, as support from sharply falling oil prices begins to fade”, the International Energy Agency said in its monthly oil report. OPEC secretary general Abdalla el-Badri said this was because it hoped to continue negotiations with non-OPEC producers on managing supply. “There’s no end in sight for the global glut”. Its plan to cut spending to US$7.7 billion comes a day after Chevron Corp. disclosed a 2016 budget 24 percent smaller than this year’s.