Brent crude slumped to a five-year low as OPEC’s decision last month to maintain output at a time of oversupply prompted a growing number of banks to cut price forecasts. West Texas Intermediate also slumped.
Futures dropped as much as 2.5 percent in London and 1.9 percent in New York. Morgan Stanley lowered its 2015 estimate by 29 percent in a report on December 5, citing a decision by the Organisation of Petroleum Exporting Countries not to lower a 30 million-barrel-a-day output target. Banks including BNP Paribas SA, Credit Suisse Group AG, UBS Group AG and Barclays plc have also cut since the 12-nation group’s November 27 meeting.
“The major forecasters continue to cut price expectations, especially for the first two quarters of 2015,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by e-mail. He forecasts Brent may drop as low as $60 a barrel within the next several months, a slump of about 11 percent from current prices.
Oil is trading in a bear market amid signs that US output is expanding even after the decision by OPEC, which is responsible for about 40 percent of global supplies. Explorers in the US increased the number of operating rigs last week, defying predictions of a drilling slowdown, according to data from Baker Hughes Inc.
Brent for January settlement declined as much as $1.72 to $67.35 a barrel on the London-based ICE Futures Europe exchange. That’s the lowest intraday price October 2009. It was down $1.52 at $67.55 at 11:29am in London. The European benchmark crude traded at a premium of $2.87 to WTI.
A surplus will peak in the second quarter of next year after OPEC refrained from tackling an oversupply, Morgan Stanley analyst Adam Longson said in December 5 report. The bank cut its 2015 estimate for Brent to $70 a barrel, from $98 previously. Longson said on November 27, the day of the meeting, that “the bear case from OPEC has emerged.”
The number of US rigs in operation rose to 1,575 through Dec. 5, the first gain in three weeks, according to Baker Hughes, a Houston-based field services company. The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Eagle Ford in Texas and the Bakken in North Dakota.
US oil production accelerated to 9.08 million barrels a day through November 28, according to data from the Energy Information Administration data. That’s the fastest rate in weekly records that started in January 1983.
“This is primarily a supply-side issue,” Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone today. “Current supplies are too large for any foreseeable improvement in demand. The price needs to fall to a level that starts to really give the market some comfort that new projects are going to be put on the backburner and delayed.”
