Oil steadies after hitting 2009 lows; more pressure seen

Meanwhile, the shift in the U.S.to producing more oil has made the stock market more vulnerable to price swings in the commodity.

WTI oil dropped by 5.8% to US$37.65 per barrel and the price of Brent oil slipped by 5.3% to US$40.73 a barrel – both their lowest closings since February 2009.

The 13-member OPEC said in a meeting on Friday that it will not cut production, now accounting for around 40 percent of the global crude output.

Oil held losses near the lowest level in more than six years on speculation a global glut will be prolonged after OPEC effectively abandoned its strategy of limiting output to control prices.

The Energy Information Administration (EIA) expects US crude oil production to fall by 400,000 barrels per day in 2016 as low prices discourage production.

The company added that the supply-demand balance in global oil market won’t be restored until the fourth quarter of 2016 due to the high surplus at the starting point, resilient non-OPEC supply, and slightly weaker yet still robust demand growth.

Opec’s output of more than 30 million bpd has compounded an oil glut, pushing production 0.5 million to 2 million bpd beyond demand and putting many producers under pressure, especially small-sized United States shale drillers that have piled up large amounts of debt.

At the same time crude imports are rising, the preliminary customs figures show China’s exports of refined products surged to 4.1 million tonnes in November, up 68 percent year-on-year. However, the low oil prices are beneficial to U.S. drivers as gas prices may go down to under $2 per gallon.

Yesterday, this was exacerbated by Opec’s failure to agree on a production level ceiling at its meeting on Friday.

Saudi Arabia, the de facto leader of OPEC (Organization of the Petroleum Exporting Countries) is the traditional swing producer of the oil group that can easily curb or ramp up oil supply. The Persian Gulf nation is seeking to boost crude exports by as much as 1 million barrels a day next year when worldwide sanctions over its nuclear program are removed.

A recent investor report from long-time crude oil bear, Goldman Sachs, had pointed to the possibility of crude oil reaching as low as $20 per barrel.