Oil Trades Near 5-Year Low as Russia Echoes OPEC Output Policy

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Oil traded near a five-year low in New York as Russia reiterated that it will keep crude production steady next year, echoing OPEC’s strategy of refraining from curbing supply to tackle a global surplus.

Futures fell as much as 3.1 percent after sliding below $54 a barrel yesterday for the first time since May 2009. Output from Russia, the world’s largest crude producer, will be similar to this year’s 10.6 million barrels a day, according to Energy Minister Alexander Novak. Iran is offering shipments to Asia at the deepest discount in at least 14 years, according to four people with knowledge of the decision. Iraq may revisit its oil-production plans, the country’s Deputy Prime Minister said today in London.

Oil has slumped about 45 percent this year as a surge in shale drilling lifted U.S. output to the fastest pace in three decades amid slowing growth in world demand. Members of the Organization of Petroleum Exporting Countries including Saudi Arabia, the world’s largest exporter, have resisted calls from producers such as Venezuela and Ecuador to reduce output to stem the price drop.

“Russia not cutting adds to the downside pressure and leaves the focus squarely on U.S. shale producers’ ability to obtain finance and carry on producing at current levels,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by e-mail. “WTI has not challenged the previous day’s high for the last 17 days. This means that those holding shorts are hanging in there without too much of a worry.”

West Texas Intermediate for January delivery declined as much as $1.72 to $54.21 a barrel in electronic trading on the New York Mercantile Exchange and was at $54.62 at 1:18 p.m. London time. It dropped to $53.60 yesterday, the lowest since May 2009. Total volume traded was 53 percent above the 100-day average for the time of day. Prices are set for the biggest annual loss since 2008.

Russian Economy

Brent for February settlement declined 94 cents, or 1.6 percent, to $59.07 a barrel on the London-based ICE Futures Europe exchange. The January contract expired yesterday after decreasing 2 percent to $59.86. The European benchmark crude traded at a premium of $4.08 to WTI for February.

Brent’s collapse this year is contributing to a currency crisis in Russia, which relies on energy exports for half its budget. Sanctions imposed by the U.S. and European Union over the conflict in Ukraine also spurred Russia’s largest capital outflows in six years as its economy nears recession.

The price of oil “will stabilize itself,” Novak said at the Gas Exporting Countries Forum in Doha yesterday.

National Iranian Oil Co. will ship light crude to Asia at $1.80 a barrel below a regional benchmark in January, according to the four people. Its official selling price for December was at a premium of 13 cents. Similar discounts were offered earlier this month by the state oil companies of Saudi Arabia, Iraq and Kuwait.

Iraqi Revision

“We do believe the Saudis when they say they are prepared for an extended period of low prices, long enough in duration to achieve their goal of slowing and possibly reversing U.S. production growth,” Michael Wittner, the head of oil market research at Societe Generale SA in New York, wrote in an e-mailed report today.

The collapse in oil prices and the cost of fighting Islamic State militants may force Iraq to review its plans to boost crude production this decade, Deputy Prime Minister Rowsch Shaways said at a conference.

Iraq’s oil production will rise to 8.4 million barrels a day by 2018, the nation’s former oil minister said in June, the government’s most recent projection. It pumped 3 million barrels a day last month, the state Oil Marketing Co., or SOMO, said Dec. 11.

In the U.S., crude inventories expanded by 1.9 million barrels last week, the American Petroleum Institute in Washington reported yesterday, according to ForexLive and LiveSquawk on Twitter. Supplies at Cushing, Oklahoma, the delivery point for New York futures contracts, rose by 2.7 million.

Stockpiles probably shrank by 2.25 million barrels, according to the median estimate in a Bloomberg News survey of eight analysts before data from the Energy Information Administration today.

The industry-funded API collects information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the EIA, the Energy Department’s statistical arm.

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