The Sunday Mail
OIL is headed for a second annual decline as a record pace of expansion in United States crude stockpiles exacerbates a global glut.
Futures have lost 31 percent this year and are set for the first back-to-back loss since 1998.
Inventories increased by more than 101 million barrels, or more than 25 percent, over the year, the biggest expansion in weekly Energy Information Administration data going back to 1983.
Supplies at Cushing, Oklahoma, the delivery point for US benchmark West Texas Intermediate crude, climbed to a record last week, according to the EIA.
Oil is trading near levels last seen during the global financial crisis amid signs the oversupply will be prolonged after the Organisation of Petroleum Exporting Countries effectively abandoned output limits at a meeting earlier this month.
Additionally, US crude output is poised to grow for a seventh straight year.
“There is a long way to go before global supply and demand rebalancing occurs,” Angus Nicholson, a market analyst at IG Ltd in Melbourne said by phone.
“There hasn’t been a significant cutback in oil production and there is the additional threat of Iran boosting exports.
“It’s going to be a dark period for the oil price during the next six months.”
WTI for February delivery was at US$36,70 a barrel on the New York Mercantile Exchange, up 10 cents.
The contract lost US$1,27 to US$36,60 last Wednesday.
Total volume traded was about 23 percent below the 100-day average.
Prices have decreased 12 percent in December and are poised for a second monthly loss.
Brent for February settlement was 18 cents higher at US$36,64 a barrel on the London-based ICE Futures Europe exchange. Prices are down 36 percent this year.
The European benchmark crude, which has averaged a US$4,62 premium to WTI this year, was at a discount of 5 cents to New York futures.
The gap between Brent and WTI has shrunk amid speculation the removal of a 40-year ban on US crude exports may ease the nation’s oversupply.
But with the spread at parity or negative, shipments into the US will probably remain elevated, which may create storage problems on the Gulf Coast during the first half of 2016, Citigroup Inc said in a research report last Wednesday.
US crude stockpiles rose by 2,63 million barrels through December 25 and production increased for a third week, the EIA said in a report last week.
Cushing inventories climbed to 63 million barrels, the highest level since the EIA began publishing weekly data in April 2004.
The hub has a working capacity of 73 million barrels, according to the EIA.
The glut may deepen as the worst flooding across the US Midwest in four years and has shut some oil pipelines and terminals near St Louis.
The biggest to close is Enbridge Inc’s Ozark pipeline, which was booked to carry about 200 000 barrels a day this month to Wood River, Illinois, from Cushing.
OPEC has pumped more than 30 million barrels a day the past 18 months, adding to the global oversupply, according to data compiled by Bloomberg.
Iran, which plans to boost exports next year once international sanctions are lifted, sees the potential for further price decline, said Rokneddin Javadi, the head of National Iranian Oil Co, according to the Shana news agency. — Bloomberg.
