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Portfolio > ETFs > Broad Market

Oil Falls to Five-Year Low on Global Supply Glut

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Oil tumbled to the lowest level in more than five years Monday on speculation a global supply glut that’s driven crude into a bear market will continue through the first half of 2015.

West Texas Intermediate fell 2.1 percent while Brent slipped 2.6 percent, reversing early gains spurred by an escalating conflict in Libya. 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.

Crude also fell as the dollar climbed to a two-year high against the euro, reducing the appeal of raw materials as a store of value.

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. 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 $1.12 to close at $53.61 a barrel on the New York Mercantile Exchange. It was the lowest settlement since May 1, 2009. The volume of all futures traded was 32 percent below the 100-day average at 2:58 p.m.

Brent for February settlement slipped $1.57 to end the session at $57.88 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since May 15, 2009. Volume was 45 percent below the 100-day average. The North Sea oil closed at $4.27 premium to WTI, down from $4.72 on Dec. 26.

Libyan crude production has slumped since a civil war that began in 2011 when Muammar Qaddafi was overthrown after a 42- year rule. The country pumped 580,000 barrels a day in November, down from about 1.59 million at the end of 2010, Bloomberg figures show.

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. Es Sider has a storage capacity of 6.2 million barrels, the National Oil Corp. said. Libya’s third-largest port of Ras Lanuf was also halted this month by fighting. The country pumped 352,000 barrels a day on Dec. 25, Elharari said.

Global Balance

“The loss of a couple hundred thousand barrels from Libya will have a minimal impact on the global supply balance,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “There’s about 2 million barrels a day of excess production right now, so this will just tighten things a little.”

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 projected to report on Dec. 31 that supplies of crude, gasoline and distillate fuel, a category that includes diesel and heating oil, gained last week, according to a Bloomberg survey of analysts.

“There should be big builds in U.S. product inventories this week,” Evans said. “There’s not a lot of scheduled refinery maintenance right now and demand hasn’t been strong.”

Fuel Prices

Gasoline futures decreased 5.59 cents, or 3.7 percent, to $1.4528 a gallon, the lowest settlement since April 2009. Diesel slipped 5.88 cents, or 3.1 percent, to close at $1.8491. It was the lowest settlement since Oct. 8, 2009.

Regular gasoline at U.S. pumps fell to the lowest level since May 2009. The average retail price slipped 1 cent to $2.287 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

The dollar strengthened against the euro amid concern elections in Greece risk severing the nation’s financial bailout agreement. The Bloomberg Dollar Spot Index climbed 0.2 percent today, while the Bloomberg Commodity Index dropped 0.4 percent.

Algerian Call

Algerian Energy Minister Youcef Yousfi called on OPEC to cut output to boost prices, the Associated Press reported. The group needs to “intervene to correct the imbalance and cut production to bring up prices and defend the income of its member states,” Yousfi said, according to the AP.

OPEC 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 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.”

Hedge funds and other speculators pared bullish bets on Brent for the first time since before the OPEC meeting. 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 prior four weeks, boosting them to the highest level since July on Dec. 16.

–With assistance from Heesu Lee in Seoul.

To contact the reporters on this story: Grant Smith in London at [email protected]; Mark Shenk in New York at [email protected] To contact the editors responsible for this story: David Marino at [email protected] Stephen Cunningham, Richard Stubbe


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