By Mark Shenk and Grant Smith
(Bloomberg) — Brent crude slumped to the lowest price since mid-2004 amid speculation suppliers from the Middle East to the U.S. will exacerbate a glut as they fight for market share.
Futures fell as much as 2.3 percent in London after a 2.8 percent drop last week. Producers are focusing on reducing costs amid the price decline, Qatar Energy Minister Mohammed Al Sada said Sunday at a gathering of Arab oil-exporting nations in Cairo. Drillers in the U.S. put the most rigs back to work since July, adding 17.
Oil has collapsed below levels last seen during the 2008 global financial crisis on signs the market’s oversupply will worsen. The Organization of Petroleum Exporting Countries effectively abandoned output limits at a Dec. 4 meeting, while the U.S. on Friday passed legislation that lifted a 40-year ban on crude exports.
“The market is continuing to grind lower as we search for a bottom,” said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut. “The weak fundamental picture is the focus of the market, and it remain so until there is a reining in of supply.”
Brent for February settlement dropped 63 cents, or 1.7 percent, to $36.25 a barrel on the ICE Futures Europe exchange at 9:18 a.m. in New York. It touched $36.04, the lowest level since July 2, 2004. Prices are down 37 percent this year, set for a third annual loss.
West Texas Intermediate for January delivery, which expires Monday, slipped 43 cents, or 1.2 percent, to $34.30 a barrel on the New York Mercantile Exchange. It touched $34.11, the lowest since Feb. 13, 2009. The more active February contract fell 39 cents to $35.67.
There’s no need to be pessimistic about oil prices, Qatar’s Al Sada said at the meeting of the Organization of Arab Petroleum Exporting Countries, which includes seven OPEC members. Crude is set to climb from current “very low” levels that are hurting producers, Iraqi Oil Minister Adel Abdul Mahdi said, without predicting when prices may rebound.
“Excess supply to the tune of 1.3 million barrels per day, and OPEC’s divide will keep prices depressed in the near term,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “That said, supply adjustments are already under way. Non-OPEC production growth slowed almost to a standstill, and should decline next year.”
The number of rigs targeting oil increased to 541, Baker Hughes Inc., an oilfield-services provider, reported on its website Friday. The Permian Basin in West Texas led the gains with five machines put back to work. U.S. crude stockpiles have expanded to 490.7 million barrels, more than 130 million above the five-year average, Energy Information Administration data showed last week.
The spread between Brent and New York futures has shrunk to the narrowest in 11 months amid speculation that the U.S. plan to allow domestic oil to be shipped overseas may ease the nation’s oversupply. The European benchmark crude was at a premium of 70 cents a barrel to the February WTI contract.
“The Brent-WTI spread has narrowed a great deal since the lifting of the export ban,” McGillian said. “We will probably return to the historical norm of WTI trading at a premium to Brent.”
U.S. producers including Continental Resources Inc. and ConocoPhillips had been pressing for an end to the restrictions. While repealing the ban could allow unfettered access to supplies, driving the most important change in the country’s oil policy in more than a generation, buyers in the east may have a limited appetite for the quality of cargoes on offer.
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