Global oil glut sends prices tumbling to its lowest in five months
Oil slid more than 4 per cent on Thursday to its lowest since late November as investor worries about a growing global glut of crude erased most of the gains that followed last year’s OPEC’s output cut.
The slide worsened after OPEC delegates said their group and other producing countries have downplayed the chance of a bigger output when the producers meet on May 25, even though they said the output cuts were likely to be extended.
US crude fell US$2.05 or 4.3 per cent to US$45.77. Brent was down US$2.07, or 4.1 per cent to US$48.71.
“The market continues to hunt for a bottom,“ said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut. ”We’ve dropped to a five month low.”
Late last year, the Organisation of the Petroleum Exporting Countries (OPEC), together with other key producers such as Russia and Oman, announced that they would cut oil output for the first six months of this year to reduce a vast global overhang of unused crude.
The pledge to remove 1.8 million barrels per day from the market sparked a 25-per cent rally in the price, pushing Brent crude to 18-month highs.
But despite the OPEC action, McGillian said, “we still have a near record overhang and signs of increasing production in areas of the world outside the producers that agreed to the cuts.”
Crude output has surged in the United States, with increasing rig counts for the past 11 months.
US government data on Wednesday showed crude stocks fell 930,000 barrels in the week to April 28, while analysts had been expecting a drop of 2.3 million barrels. Stocks have steadily declined for the last four weeks, but at 527.8 million barrels they are just 7 million barrels off a record high.
Russia’s Energy Minister, Alexander Novak, said in written comments on Thursday that his country is inclined to extend.
But the market continues to question whether continuing the 1.8 million bpd cut will be sufficient to reduce the glut significantly.
“At some point, the market should recognise OPEC isn’t the most important player in the market any more,” said Commerzbank’s Eugen Weinberg, “That is non-OPEC, and, above all, US shale.”