West Texas Intermediate crude is poised to extend its slide below $100 a barrel through the end of the year as U.S. supplies surge, tensions with Iran ease and political wrangling in Washington goes on.
The U.S. benchmark grade will decline $2 more by Dec. 31, according to the mean of 16 analysts and traders surveyed by Bloomberg. Prices fell to a three-month low yesterday in New York after a government report showed a U.S. stockpile gain, while renewed talks on Iran’s nuclear program allay the risk of a wider Middle East conflict and American political deadlock endangers economic growth.
“Fundamentally, the world in general and the U.S. in particular is very well supplied,” said Tom Finlon, director of Energy Analytics Group LLC based in Jupiter, Florida, who is looking for WTI to fall to $92 at the end of 2013.
Futures in New York have declined 12 percent since Sept. 6 as Iran signaled that it’s prepared to make concessions on its nuclear research, damping the risk that friction with the OPEC member may halt exports from the region. The U.S. grade is lagging behind its rival global oil benchmark, North Sea Brent, as soaring American output helps the country achieve its highest level of energy independence in decades.
WTI for November delivery fell $1.42, or 1.4 percent, to $97.80 a barrel on the New York Mercantile Exchange, the lowest settlement since June 28. The December contract dropped $1.38, or 1.4 percent, to $98.30. Brent for December climbed 33 cents, or 0.3 percent, to end the session at $109.97 a barrel on the London-based ICE Futures Europe exchange.
The WTI price projections ranged from $85 to $106 in the survey conducted yesterday. The forecast decline to about $97 would still leave the contract at the second-highest year-end level on record, surpassed by $98.83 on Dec. 30, 2011.
U.S. crude supplies rose 5.3 percent to 374.5 million barrels in the four weeks ended Oct. 11, the Energy Information Administration said yesterday. U.S. production reached 7.83 million barrels a day in the week ended Sept. 13, the most since May 1989, according to the EIA, the Energy Department’s statistical arm.
U.S. crude production has surged as the combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in the central part of the nation. Canadian oil sands output will rise at an annual rate of about 250,000 barrels a day through the end of the decade from about 1.8 million barrels now, Altaf Nanji, an analyst at RBC Capital Markets in Toronto, wrote on Oct. 11.
Additional crude supplies have helped push the average price for regular gasoline at U.S. pumps to its lowest level in almost nine months, data from Lundberg Survey Inc. show. Regular grade slid 2.01 cents in the past two weeks to $3.3628 a gallon, the least since Jan. 25, the Camarillo, California-based company said Oct. 20.
Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI, rose by 366,000 barrels to 33 million last week. It was the first increase since June. Supplies at the hub have decreased as improved pipeline networks and shipments by rail eased a North American supply glut created by the rising output.
“We should also be moving lower because of the rise in supplies in Cushing, even with the opening of pipeline and rail routes,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, who projects WTI will drop to $92.50 by year-end. “This shows what an avalanche of oil is coming from the oil sands in Alberta and the shale fields in the U.S.”
Iran and world powers last week held two days of talks on the Persian Gulf nation’s nuclear program, negotiations described by diplomats present as the most-detailed ever. Talks are set to resume on Nov. 7 in Geneva. Iranian President Hassan Rouhani and U.S. President Barack Obama spoke by phone last month, the highest level contact between leaders of the two countries since the 1979 Islamic Revolution.
Sanctions imposed over the nuclear program have hindered Iran’s ability to export oil. Iran, the Organization of Petroleum Exporting Countries’ second-biggest producer in June 2012, was in sixth place last month, according to a Bloomberg survey of companies, producers and analysts.
A 16-day partial shutdown of the U.S. government “inflicted completely unnecessary damage” to the nation’s economy, Obama said Oct. 17 after signing a bill to reopen the government through Jan. 15 and extend borrowing authority to Feb. 7.
The government closing shaved at least 0.6 percent from U.S. fourth-quarter gross-domestic-product growth, Standard & Poor’s said in a report Oct. 16. Americans in October were the most pessimistic about the nation’s economic prospects in almost two years, as concern mounted that the political gridlock in Washington would hurt the expansion, according to the Bloomberg Consumer Comfort Index of expectations.
Total products supplied, a measure of U.S. fuel demand, fell 2.7 percent from a year earlier to 19 million barrels a day in the week ended Oct. 11, the EIA reported.
“I expect prices to reach $90 by year’s end, as the current period of demand weakness will undermine the bulls, and absent any negative geopolitical news, market fundamentals will put pressure on the price,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
Supply disruptions across the Middle East and Africa outweigh the rise in North American production and the reduced geopolitical premium, said Seth Kleinman, head of energy strategy at Citigroup Inc. in London.
Libyan output tumbled 275,000 barrels to 300,000 barrels a day in September, the Bloomberg survey showed. It was the sixth straight decline and sent production to the lowest level since September 2011. The African country is pumping more than 600,000 barrels a day, Mohamed El Harari, a spokesman for Libya’s state-run National Oil Corp., said yesterday in an interview in Tunis.
Nigeria’s Movement for the Emancipation of the Niger Delta said yesterday that it plans to escalate a violent campaign of disruption to oil output in Africa’s leading producer. Attacks including kidnappings and bombing of oil installations by groups including MEND cut more than 28 percent of Nigeria’s oil output from 2006 to 2009, according to data compiled by Bloomberg.
“I don’t disagree with the bearish arguments, I just think the geopolitics are probably being underestimated,” Kleinman said. “We don’t expect a significant jump in Iran exports any time soon, and Libya’s bouncing around. Nigeria seems to be getting worse rather than better.”