WTI Falls Below $50 a Barrel

By Mark Shenk

(Bloomberg) — West Texas Intermediate oil fell below $50 a barrel for the first time since April 2009 as surging supply signaled that the global glut that drove crude into a bear market will persist.

Futures slid as much as 5.2 percent in New York. Brent futures earlier slid below $55 in London for the first time since May 2009. Russia’s output rose to a post-Soviet high in December, preliminary Energy Ministry data showed. Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, plans to boost crude exports to a record this month, the Oil Ministry said.

“This bearish market is being fed by a combination of surging supply and shaky demand,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “We now have Russian production at a post-Soviet high and the Iraqis planning to add even more supply to the market. This just adds to negative market sentiment.”

Brent slumped 48 percent last year, the most since the 2008 financial crisis, as OPEC resisted calls to cut output amid a battle with U.S. shale producers for market share. The 12-member group pumped above its target for a seventh straight month in December, according to a Bloomberg survey.

West Texas Intermediate for February delivery dropped $2.48, or 4.7 percent, to $50.21 a barrel on the New York Mercantile Exchange at 11:33 a.m. local time. It slipped to $49.95, the lowest level since April 29, 2009. Volume for all futures traded was 4.8 percent above the 100-day average. The U.S. benchmark grade traded at a $3.04 discount to Brent.

Iraq Output

Brent for February settlement declined $3.60, or 6.4 percent, to $52.82 a barrel on the London-based ICE Futures Europe exchange. The contract touched $52.66, the lowest since May 4, 2009. The volume of all futures traded was 42 percent higher than the 100-day average for the time of day.

Iraq plans to expand crude exports to 3.3 million barrels a day this month, Asim Jihad, a spokesman at the Oil Ministry in Baghdad, said by phone yesterday. The country exported 2.94 million a day in December, the most since the 1980s, he said.

Russian oil production rose 0.3 percent in December to a post-Soviet record of 10.667 million barrels a day, according to preliminary data published Jan. 2 by CDU-TEK, part of the Energy Ministry.

Saudi Discounts

Saudi Arabia may narrow discounts in its official February crude selling prices to buyers in Asia in the coming days amid speculation that demand will increase because of the plunge in benchmark prices, according to 12 of 15 traders and refiners in a Bloomberg survey through today. Three respondents forecast price differentials would be unchanged.

The world’s biggest oil exporter offered its Arab Light grade at the greatest discount in at least 14 years for January. The move was followed by Iraq, Kuwait and Iran, prompting speculation that Middle East producers were protecting market share.

The oil market is set for “more problems” this year as increasing supplies add to the global glut, according to Morgan Stanley. Output may rise in West Africa, Latin America, the U.S. and Canada in addition to more shipments from Russia and Iraq, offsetting concerns of reduced Libyan production, analysts including New York-based Adam Longson said in an e-mailed report today. Iran may boost exports by about 500,000 barrels a day if western sanctions against it are lifted, the analysts said.

Brent will trade at $80 a barrel this year, down from an earlier estimate of $104, amid increases in global spare capacity and rising inventories, Sanford C. Bernstein said in an e-mailed report today. The researcher also reduced its prediction for 2016 to $90 from $109 previously.

Venezuelan Meetings

Venezuela President Nicolas Maduro is traveling to China for talks on financing and energy and expects to visit other OPEC nations to develop an oil-pricing strategy, he said on state television yesterday. Maduro plans to meet Chinese President Xi Jinping as he seeks to “confront” the decline in Venezuela’s income that has forced his government to review “all investment plans” and seek new ways to obtain foreign currency.

The drop in crude accelerated as the dollar climbed to the highest level in almost nine years against the euro amid investor concern Greece might leave the currency union. The euro lost as much as 1.2 percent to $1.1864. A stronger U.S. currency usually reduces the appeal of commodities as a store of value.

“The euro is getting trounced on the Greek news today,” Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania, said by phone. “There’s a very strong correlation between dollar strength and oil prices. The dollar is very strong right now.”

Fuel Prices

Gasoline futures declined 5.18 cents, or 3.6 percent, to $1.3816 a gallon. It touched $1.3792, the lowest intraday level since April 2009. Diesel decreased 4.41 cents, or 2.5 percent, to $1.7516, and earlier it reached $1.7502, the least since October 2009.

Regular gasoline at U.S. pumps fell to the lowest level since May 2009. The average retail price slipped 1 cent to $2.199 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

“This bearish syndrome will continue until the drop in prices either stimulates economic growth or there is a supply response,” Kilduff said.

–With assistance from Grant Smith and Rupert Rowling in London.

Copyright 2015 Bloomberg.