HONG KONG: Oil extended declines from the lowest close in more than 12 years before United States government data forecast to show crude supplies expanded, exacerbating a global glut.
Futures fell as much as 3.2 per cent in New York after dropping 5.3 per cent on Monday. Stockpiles probably rose by 2 million barrels last week, a survey showed before a report from the Energy Information Administration (EIA) on Wednesday.
Iran will begin selling a new grade of crude as soon as March as it prepares to boost production once international sanctions blocking exports are lifted, according to an official at the country’s state-run oil company.
“When you have a supply overhang, there’s going to be continued downward pressure on prices,” Ric Spooner, a chief analyst at CMC Markets in Sydney, said by phone. “Investors are looking toward a difficult few months for oil, especially with Iran set to boost exports. We are likely to see production cuts at these prices, but they may take some months to come through.”
Oil slid more than 15 per cent in the previous six sessions, the biggest such drop in more than four years, as volatility in Chinese markets fuelled a rout in global equities and US supplies remained about 100 million barrels above the five-year average. Brent crude, the global benchmark, may trade in the $20s if the dollar rapidly gains, according to Morgan Stanley.
West Texas Intermediate for February delivery fell as much as $1 to $30.41 a barrel on the New York Mercantile Exchange and was at $30.65 at 7:48am London time. The contract dropped $1.75 to $31.41 on Monday, the lowest close since December 2003. Total volume traded was about 77 per cent above the 100-day average. Prices lost 30 per cent last year.
Brent for February settlement lost as much as $1.12, or 3.6 per cent, to $30.43 a barrel on the London-based ICE Futures Europe exchange. The contract declined $2, or 6 per cent, to $31.55 Monday, the lowest close since April 2004. The European benchmark crude was at a premium of 10 cents to WTI.
US crude stockpiles probably increased for the second time in three weeks, according to the survey. Gasoline inventories gained by 1.8 million barrels, the survey shows. Supplies of the motor fuel rose by 10.6 million barrels through January 1, the most since May 1993, according to data from the EIA.
Iran is increasing output at fields in the West Karoun region, near the Iraqi border, and most of the crude in the new blend will come from the Yadavaran, South Azadegan and North Azadegan fields, the National Iranian Oil Company official said, declining to be identified due to company policy.
Oil is particularly leveraged to the dollar and may fall between 10 to 25 per cent if the currency gains 5 percent, Morgan Stanley analysts including Adam Longson said in a research note dated January 11. Societe Generale cut its average 2016 Brent forecast to $42.50 a barrel from $53.75 on Monday, while Bank of America trimmed its forecast to $46 a barrel from $50.
Petroliam Nasional sees crude prices averaging $30 a barrel this year in its ‘low-price’ scenario and warned the Malaysian state oil company faces two to three tough years. The company just two months ago forecast a 2016 average price of $48.