Benchmark U.S. oil prices are poised to test $55 a barrel after a six-month rout pushed crude to the lowest in five years.
West Texas Intermediate crude ended below $58 today for the first time since May 2009 after the International Energy Agency cut its global demand forecast for the fourth time in five months. Prices are down 46 percent from this year’s highest close of $107.26 on June 20.
“By taking out $58, oil is moving towards the next target $55,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s such an emotional selloff, and the even numbers are going to be the magic numbers.”
WTI for January delivery dropped $2.14, or 3.6 percent, to $57.81 a barrel today on the New York Mercantile Exchange. Brent slid $1.83 to $61.85 on the London-based ICE Futures Europe exchange, the lowest since July 2009.
Both benchmarks have collapsed about 20 percent since Nov. 26, the day before the Organization of Petroleum Exporting Countries agreed to leave its production limit unchanged at 30 million barrels a day. U.S. output, already at a three-decade high, will continue to rise in 2015, according to the IEA. The Paris-based agency reduced its estimate for oil demand growth in 2015 by 230,000 barrels a day.
“We could definitely see $55 next week,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “We are probably going to see some violent trading.”
Skip York, a Houston-based vice president of energy research at Wood Mackenzie Ltd., said the next price target is $45.
“The market hasn’t seen the response they’re looking for on the supply side yet,” York said. “We’re now in this environment where I think prices are going to keep drifting down until the market is convinced, until the signal that production growth needs to slow has been received and acted on by operators.”
Traders will be monitoring drillers’ fourth-quarter earnings statements and listening in on their earnings calls next month to gauge how much production growth will slow, York said. Wells with higher operating costs come under pressure at $45 oil, he said.
Low oil prices may slow U.S. shale production, Ian Taylor, chief executive officer of Vitol Group, said in an interview yesterday at the Platts Global Energy Outlook Forum.
U.S. oil drillers idled the most rigs in almost two years this week. Rigs targeting oil dropped by 29 to 1,546, the lowest level since June and the biggest decline since December 2012, Baker Hughes Inc. said on its website today.