Brent crude slid below $50 a barrel to its lowest level since November as confidence in Opec’s ability to overpower a resurgent US shale industry and ease a global oil surplus faded. The international oil benchmark dropped by almost 5 per cent on Thursday to $48.32 a barrel.
West Texas Intermediate, the US marker, fell by a similar amount to $45.39 a barrel by 6.30pm in London. Both benchmarks have almost erased all of the gains made since some of the world’s biggest producers agreed to curb supplies in an effort to end the worst oil crash in a generation.
“Sentiment at the moment is very negative,” said Giovanni Staunovo, commodity analyst at UBS Wealth Management. Oil market participants have been rapidly losing faith in the ability of Opec and rival producers outside the cartel, such as Russia, to shrink the excess crude inventories that have kept a ceiling on prices following the three-year downturn.
Not only did higher prices at the start of the year reinvigorate the US shale industry, Opec producers have been exporting at levels that were higher than expected despite the supply cut deal. This has led hedge funds that bet on a higher oil price to liquidate their positions given the weakness. Oil’s drop on Thursday came amid a wide retreat in commodities. Gold fell more than 1 per cent to $1,225.20 a troy ounce, the lowest since mid-March, while silver touched its lowest level since the start of the year, down more than 1 per cent to $16.17. Meanwhile, copper fell 1.6 per cent to $5504 a tonne.
Corn was down by almost 1 per cent to $3.62 ¾ a bushel. Oil investors and analysts have said that while Opec countries have hit their target of cutting more than 1.2m barrels a day, data suggest the group’s exports have not declined by a similar margin. Opec and non-Opec ministers are set to meet again at the end of this month in Vienna. Reports suggesting a lack of agreement helped send prices lower on Thursday, but participants are ultimately expected to extend the supply cut beyond an initial six-month period that runs until the end of June.
Even though global energy agencies still believe supply and demand will come into balance in the second half of this year, those crude inventories whose size can be easily tracked remain stubbornly high. The market is focused on the US stockpiles even if there are strong declines elsewhere, analysts say. “Hopes of US stock rebalancing are being thrown into doubt,” said Tamas Varga at London-based oil broker PVM.
