Oil Slumps to Six-Year Low as U.S. Production Seen Filling Tanks

By Ben Sharples

(Bloomberg) — Oil slid to the lowest intraday price in six years amid speculation that record crude inventories in the U.S. may begin to strain the country’s storage capacity.

Futures fell as much as $1.27 to $43.57 a barrel in New York, the lowest level since March 2009, declining for a fifth day. The International Energy Agency boosted estimates for U.S. oil production in 2015 as drill rig cutbacks fail to slow output and said tanks are at risk of becoming full. A gauge of global commodities prices may drop 20 percent over six months, according to Goldman Sachs Group Inc.

Oil capped a fourth weekly loss on Friday as U.S. output and stockpiles expanded to the highest levels in more than three decades, exacerbating a glut that drove prices almost 50 percent lower last year. It’s “too early to say” if the Organization of Petroleum Exporting Countries will change policy when it gathers on June 5, according to Saudi Arabia, which led the group’s decision to refrain from cutting output in November.

“We’ve got this ongoing increase in inventory with no cut in production, despite the drop in the number of shale oil rigs,” Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone. “We are seeing downside momentum now develop in the market.”

West Texas Intermediate for April delivery was down 1.7 percent, or 78 cents, at $44.06 a barrel in electronic trading on the New York Mercantile Exchange at 8:45 a.m. Singapore time. Futures fell 4.7 percent to $44.84 on Friday and capped a 9.6 percent weekly drop, the most since December. The volume of all futures traded was 99 percent above the 100-day average. Prices have decreased 17 percent this year.

U.S. Supply

Brent for April settlement fell as much as $1.34 to $53.33 a barrel on the London-based ICE Futures Europe exchange. The contract, which expires today, declined 4.2 percent to $54.67 on March 13. The European benchmark crude was at a premium of $9.50 to WTI, from $9.83 on Friday.

U.S. oil supply will expand this year by about 750,000 barrels a day to 12.56 million a day, the IEA said in a report on Friday. That’s up from a projection of 12.41 million in a report last month. The Paris-based agency boosted estimates for North American output in the fourth quarter of 2014 by a “steep” 300,000 barrels a day. The production forecasts include natural gas liquids and condensate, according to the IEA.

Crude supplies in the U.S., the world’s biggest oil user, rose to 448.9 million barrels through March 6, according to the Energy Information Administration. That’s the highest level in weekly data compiled by the EIA since August 1982. The nation pumped 9.37 million barrels a day, the most since 1983.

Commodity Gauge

Rigs targeting oil in the U.S. fell by 56 to 866 through March 13, the lowest level since March 2011, according to data from Baker Hughes Inc. Companies have idled 709 machines since the start of December, the figures showed.

Global crude use is recovering, and prices are steadier as demand matches supply, according to Saudi Arabia, the world’s biggest crude exporter and largest OPEC member.

Prices have stabilized at about $60 a barrel based on fundamental market forces, Ibrahim Al-Muhanna, an adviser to Saudi Oil Minister Ali al-Naimi, said at a conference in Doha, Qatar.

The Standard & Poor’s GSCI commodity index, which takes into account gains or losses from rolling futures contracts forward as well as changes in the underlying price, will slide 18 percent over the next three months and 20 percent over 6 months, Goldman said in a note March 13. The index is down 6 percent this year.

Oil prices haven’t bottomed yet, according to former Federal Reserve Chairman Alan Greenspan. Inventories at Cushing, Oklahoma, the delivery point for U.S. benchmark futures, will keep rising, he said in a Bloomberg TV interview on Friday.

(c) 2015 Bloomberg.