West Texas Intermediate crude is poised to extend its slump below $90 as consumption slows and supplies climb from the U.S. and Libya
, according to the most accurate forecaster of prices of the grade in the second quarter.
Crude is under pressure because of signs of easing demand in emerging markets, said Jason Kenney, an equity analyst at Banco Santander SA. Prices are also falling because of “comfortable supply” as U.S. shale oil production booms and Libyan crude output rebounds, he said. WTI fell below $90 a barrel today for the first time in 17 months, extending this year’s decline to 9.9 percent.
Surging output from shale deposits has turned the U.S. into the world’s largest producer of liquid petroleum, cutting its need for imports just as the pace of global demand is slowing. U.S. crude output rose to the most since 1986 last month, while OPEC pumped at the highest level in a year.
“I think it’s reasonable to stay cautious rather than bullish on oil prices,” Kenney said in a phone interview from Edinburgh. “The challenge in oil pricing globally at the minute is weak consumption trends across northeast Asia and also in the Middle East and Latin America.”
WTI will average $97.50 a barrel this year, dropping to $86 in 2015, according to Santander. The U.S. benchmark traded $2.06 lower at $88.67 a barrel on the New York Mercantile Exchange at 11:47 a.m. London time. Brent crude, the European benchmark, fell 20 percent from its June peak to trade at $92.24 a barrel today on London’s ICE Futures Europe exchange.
“The global oil demand trend showed clear signs of weakening” last quarter, as demand growth from the same period a year earlier fell to 480,000 barrels a day, the lowest in two and a half years, according to a Sept. 11 report from the International Energy Agency in Paris. The adviser to 29 industrialized nations also trimmed its demand forecast for next year to 93.8 million barrels a day because of a “weaker outlook for Europe and China.”
The Organization of Petroleum Exporting Countries probably won’t react immediately to the oil price slump by reducing production because “they can probably withstand Brent prices between $80 to $85,” Kenney said.
OPEC output increased by 413,000 barrels a day to 30.935 million in September as Libyan production rebounded to the highest level in more than a year, according to a Bloomberg survey.
Saudi Arabia yesterday dropped its official selling price for crude oil to Asia to the lowest level since 2008 amid speculation it was seeking to gain market share in the fastest-growing region for petroleum demand.
Bloomberg ranked energy forecasters based on the accuracy of their predictions for the most recent eight quarters ending on June 30, 2014. Kenney’s average margin of error of 4.11 percent was the lowest.