Oil closed at the lowest level in more than six years as speculation that OPEC will keep markets oversupplied outweighed a drop in U.S. crude stockpiles.
Futures have fallen 11% in New York since OPEC’s Dec. 4 decision to effectively abandon its output target. The Organization of Petroleum Exporting Countries raised production in November to a three-year high, according to its monthly report. U.S. crude stockpiles fell by 3.57 million barrels last week, according to government data Wednesday. Gasoline rose after a smaller-than-projected supply gain amid strong U.S. demand.
Oil is trading near levels last seen during the global financial crisis as Saudi Arabia leads OPEC in maintaining output and defending market share against higher-cost producers.
U.S. crude inventories remain about 120 million barrels above the five-year average. Chevron Corp. said it will cut spending on exploration, drilling and other projects by almost a quarter next year in response to the price slump.
“Prices have dropped near seven-year lows and haven’t been able to bounce back,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “There’s a focus on the bearish underlying fundamentals of the physical market. OPEC not only announced fresh three-year highs for its own production, but it also revised non-OPEC 2015 output higher.”
West Texas Intermediate for January delivery dropped 40 cents, or 1.1 percent, to settle at $36.76 a barrel on the New York Mercantile Exchange. It’s the lowest close since February 2009. The volume of all futures traded was 27 percent above the 100-day average.
Brent for January settlement slipped 38 cents, or 1 percent, to end the session at $39.73 a barrel on the London- based ICE Futures Europe exchange. It was also the lowest since February 2009. The European benchmark crude closed at a $2.97 premium to WTI.
Energy companies were among the biggest gainers on the Standard & Poor’s 500 Index after leading declines in the five days ended Tuesday. Exxon Mobil Corp. and Chevron Corp., the biggest U.S. energy producers, climbed 1.4 percent and 3.1 percent, respectively.
Output from the Organization of Petroleum Exporting Countries rose by 230,100 barrels a day in November to 31.695 million a day, the highest since April 2012, as surging Iraqi volumes more than offset a slight pullback in Saudi Arabia. The organization is pumping about 900,000 barrels a day more than it anticipates will be needed next year.
“Fears of the supply glut are the primary concern of traders,” said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut. “After the OPEC meeting we’re poised to test the lows last reached during the financial crisis. We dropped to the $32 area then, and its likely we will grind lower at least until we near it.”
U.S. crude stockpiles fell by 3.57 million barrels through Dec. 4, according to a report from the Energy Information Administration. Supplies along the Gulf Coast fell by 7.3 million barrels, the most since December 2012. Refiners in Texas typically drain tanks to reduce their tax burden, which is determined by year-end levels.
Demand for gasoline rose 1.5 percent to 9.42 million barrels a day last week, the highest since August, EIA data showed.
Gasoline futures for January delivery climbed 4.85 cents, or 3.9 percent, to close at $1.2802 a gallon. It touched $1.1956 on Tuesday, the lowest level in more than six years.
Chevron is focusing on investments that will deliver the highest profits in the near term while holding off on more ambitious projects that take several years to begin generating cash. About 70 percent of the spending will be for developments outside the U.S., the San Ramon, California-based company said in a statement Wednesday.
Crude is ready for a rebound because money managers were the least-bullish on WTI in five years, according to government data for the week ended Dec. 1, according to Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC.
“I’m waiting for the market to snap back,” Finlon said. “we’re due for a major short-covering rally.”
– With assistance from Grant Smith.