Oil prices sink to 9-month low as global glut keeps market on defensive
Oil tumbled to the lowest level in nine months, pulling energy stocks down, amid growing concerns that OPEC-led output cuts are failing to ease a global supply glut.
Futures declined 2.2 per cent in New York, entering a bear market for the first time since August, as investors focus on rising production from countries that are not part of OPEC’s deal. Libya is pumping the most crude in four years, and the amount of oil stored in tankers reached a 2017 high earlier this month. US drillers have added oil rigs for 22 straight weeks.
“We still have a lot of oil,” Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors, said. “Libya is coming on a little bit more than people expected. And the bottom line is that the glut that’s here in the United States doesn’t look to be” slowing anytime soon, he said.
West Texas Intermediate crude, the US benchmark, dropped 21 per cent from a close of US$54.45 on February 23, entering a bear market, which kicks in when settlement prices fall at least 20 per cent from their peak.
Oil has stayed below US$45 a barrel since last week as supplies in the US remain plentiful and the oil rig count rises to the highest since April 2015. WTI for July delivery, which expires Tuesday, fell 97 cents to settle at US$43.23, the lowest since mid-September. Total volume traded was about 35 per cent above the 100-day average. The more-active August WTI contract declined 92 cents to end the session at US$43.51.
Brent for August settlement slipped 89 cents to settle at US$46.02 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of US$2.51 to August WTI.
“People are getting a little fatigued waiting for the production cuts to have effect,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said. Traders are “very nervous about the near-term prospects.”
The S&P 500 Energy Index declined as much as 2.3 per cent, with Hess Corp slumping as much as 6.8 per cent. Exxon Mobil Corp slipped as much as 1.6 per cent, while Royal Dutch Shell Plc and BP Plc both fell more than 2 per cent.
Another factor feeding trader angst is a rise in the number of drilled-but-uncompleted wells in US oilfields. At the end of May, there were 5,946 wells in this category, the most in at least three years, according to estimates by the EIA. In the last month alone, explorers drilled 125 more wells in the Permian Basin than they would open, meaning production could surge when they turn on the spigots.
US crude inventories probably shrank by 1.2 million barrels last week, according to a survey before Energy Information Administration data out on Wednesday. Yet, American production climbed to 9.33 million barrels a day through June 9, near the highest since August 2015. Gasoline supplies probably rose 500,000 barrels last week, the survey showed. The industry-funded American Petroleum Institute will release its inventory data later on Tuesday.
Libya is pumping about 900,000 barrels a day, according to a person with direct knowledge of the matter, who asked not to be identified for lack of authority to speak to the media.