Oil Falls to 5-Year Low as Supply Glut Seen Lingering
An oil refinery in Szazhalombatta, Hungary.
Oil fell to the lowest level in more than five years amid speculation that a global supply glut that’s driven crude into a bear market will continue through the first half of 2015.
West Texas Intermediate dropped as much as 2.2 percent, erasing an earlier gain. Fires have been extinguished at three of six tanks at Es Sider, Libya’s largest oil port, which were set ablaze after an attack by militants, said National Oil Corp. spokesman Mohamed Elharari. Algerian Energy Minister Youcef Yousfi called on OPEC to cut output to boost prices, the Associated Press reported.
Futures plunged 46 percent this year, set for the biggest annual drop since 2008, as the Organization of Petroleum Exporting Countries resisted supply cuts to defend market share in response to the highest U.S. output in three decades. Libya pumped 580,000 barrels a day in November, down from about 1.59 million at the end of 2010, data compiled by Bloomberg show. Trading was below average amid Christmas and New Year holidays.
“We’re looking at a significant supply-demand surplus through the first half of 2015,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “The problems in Libya and any reduction in the growth of U.S. production will only help limit the surplus, but it’s not going away anytime soon.”
WTI Futures
WTI for February delivery fell 96 cents, or 1.8 percent, to $53.77 a barrel at 12:25 p.m. on the New York Mercantile Exchange. Futures touched $53.52, the lowest level since May 2009. The volume of all futures traded was 43 percent below the 100-day average for the time of day.
Brent for February settlement slipped $1.09, or 1.8 percent, to $58.36 a barrel on the London-based ICE Futures Europe exchange. It touched $57.88, the lowest level since May 2009. Volume was 51 percent below the 100-day average. The European benchmark traded at $4.59 premium to WTI, down from $4.72 on Dec. 26.
Libya’s oil production slumped after a civil war that began in 2011 when dictator Muammar Qaddafi was overthrown after a 42-year rule. The tank fires started on Dec. 25 after the Petroleum Facilities Guard gave Islamist militias an ultimatum before air strikes and the rebels fought back with rockets.
Falling Output
The Es Sider facilities have a total storage capacity of 6.2 million barrels, according to National Oil Corp. Libya’s third-largest port of Ras Lanuf was also halted this month by fighting. The country pumped 352,000 a day on Dec. 25, Elharari said.
“There was a pop off of the Libya headlines earlier today,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone. “A year ago this kind of headline would have spurred a $3-to-$4 rally. The market is so oversupplied right now that it can’t muster a rally on what are bullish headlines.”
Prices tumbled on Dec. 24 after an Energy Information Administration report showed that U.S. crude and fuel inventories surged the prior week. The EIA, the Energy Department’s statistical arm is scheduled to report on supplies last week on Dec. 31.
“Concerns that this week’s numbers will be similar to those last week are going to keep prices from climbing far,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone.
Fuel Prices
Gasoline futures decreased 4.59 cents, or 3 percent, to $1.4628 a gallon in New York, after touching $1.4609, the lowest intraday price since May 2009. Diesel slipped 3.75 cents, or 2 percent, to $1.8704. It reached $1.8658, the lowest level since May 2009.
Regular gasoline at U.S. pumps fell to the lowest level since May 2009. The average retail priceslipped 1 cent to $2.287 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.
OPEC needs to “intervene to correct the imbalance and cut production to bring up prices and defend the income of its member states,” Algeria’s Yousfi said, according to the AP.
The 12-member group decided at a Nov. 27 meeting to maintain its collective output quota at 30 million barrels a day. It pumped 30.56 million a day in November, exceeding that target for a sixth straight month, a Bloomberg survey of companies, producers and analysts shows.
“There’s still an awful large amount of surplus oil even with the loss of Libyan barrels,” Yawger said. “We’re still within striking distance of multiyear lows and it wouldn’t take much to get us to test them again.”
Hedge funds and other financial traders pared overall bullish bets on Brent crude for the first time since before OPEC’s decision to maintain production levels.
Money managers curtailed net-long positions by 15 percent to 112,886 contracts in the week ended Dec. 23, according to ICE Futures Europe exchange. They had added to net-longs in the previous four weeks, increasing them in the week to Dec. 16 to the highest level since July, even as Brent fell below $60 a barrel for the first time since 2009.
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Managed Accounts Year End Review and Forecast
Gold and Precious MetalsThe largest gains for our clients came from the exit from the gold producers at $18oo an ounce and continuing until we hold no gold and no gold miners . This from the author of The Gold Investors Handbook.2015 – We continue to be on the sidelines for this sector – regardless of the gnomes of Switzerland . As a safe haven gold simply wasnot there for investors despite turmoil in the Middle East, Africa and Ukraine.How much more frightening can the prospect for peace be than to have wars in multiple locations? Secondly the spectre of inflation – on which I have given numerous talks – simply failed to materialize. In fact economists and portfolio managers such as myself are now more concerned about deflation – and the spectre is a Japanese style decades long slide in the world economy.
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