Oil Falls to 5 1/2-Year Low as Russia, Iraq Boost Output

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China Manufacturing
An employee inspects a circuit board in a manufacturing facility in the Nanshan district of Shenzhen, China. A manufacturing gauge in China, the world’s second-largest oil consumer, fell to the weakest level in 18 months, government data showed yesterday. Photographer: Brent Lewin/Bloomberg

Oil dropped to the lowest in more than five and a half years amid growing supply from Russia and Iraq and signs of manufacturing weakness in Europe and China.

Futures capped a sixth weekly loss in New York and London. Oil output in Russia and Iraq surged to the highest levels in decades in December, according to data from both countries’ governments. Euro-area factory output expanded less than initially estimated in December. A manufacturing gauge in China, the world’s second-largest oil consumer, fell to the weakest level in 18 months, government data showed yesterday.

Prices slumped 46 percent in New York in 2014, the steepest drop in six years and second-worst since trading began in 1983, as U.S. producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share. OPEC pumped above its quota for a seventh month in December even as U.S. output expanded to the highest in more than three decades, according to data compiled by Bloomberg.

“We’re seeing more of the same,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. “The Chinese and European PMI figures signal weaker demand, while there’s ever-increasing supply. Nobody is cutting back on output and now the Russians are posting post-Soviet production highs.”

West Texas Intermediate for February delivery fell 58 cents, or 1.1 percent, to $52.69 a barrel on the New York Mercantile Exchange, the lowest close since April 30, 2009. Volume for all futures traded was 29 percent below the 100-day average at 2:57 p.m.

Brent Futures

Brent for February settlement dropped 91 cents, or 1.6 percent, to close at $56.42 a barrel on the London-based ICE Futures Europe. It’s the lowest settlement since April 30, 2009. Volume for all futures traded was 34 percent below the 100-day average. The European oil fell 48 percent last year, the second-biggest annual loss on record behind a 51 percent tumble in the 2008 financial crisis. Brent closed at a $3.73 premium to WTI.

“There’s a lack of market participants,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “ I wouldn’t read much into today’s moves because volume is particularly low. It’s as dead as a dodo bird in London.”

A final reading of a Purchasing Managers’ Index for the euro area’s manufacturing stood at 50.6 in December, London-based Markit Economics said today. The euro lost as much as 0.8 percent to 1.2003 per dollar. A stronger U.S. currency usually reduces the appeal of commodities as a store of value.

Industrial Growth

In China, the official Purchasing Managers’ Index dropped to 50.1 in December from 50.3 the previous month, according to data from the statistics bureau and the China Federation of Logistics and Purchasing. A separate manufacturing reading from HSBC Holdings Plc and Markit Economics on Dec. 31 also fell.

Manufacturing in the U.S. also cooled in December. The Institute for Supply Management’s factory index dropped to a six-month low of 55.5 from 58.7 in November, a report from the Tempe, Arizona-based group showed today.

The surge in supplies in Iraq and Russia signaled no respite in early 2015 from the glut. Russian output rose 0.3 percent in December to a post-Soviet record of 10.667 million barrels a day, preliminary data e-mailed today by CDU-TEK, part of the Energy Ministry, showed. Iraq exported 2.94 million barrels a day in December, the most since the 1980s, Oil Ministry spokesman Asim Jihad said.

OPEC Production

The final two burning crude-storage tanks were extinguished at Es Sider, Libya’s biggest oil port, National Oil Corp. spokesman Mohammed Elharari said by phone from Tripoli. The fires started Dec. 25, when Islamist militants shot rockets at the port in a second attempt to capture it.

OPEC’s production slid by 122,000 barrels a day from November to 30.24 million last month, a Bloomberg survey of companies, producers and analysts shows. The 12-member group has a collective target of 30 million a day.

U.S. oil production averaged 9.12 million barrels a day in the week ended Dec. 26, according to the Energy Information Administration. Output increased to 9.14 million a day through Dec. 12, the most in weekly data that started in January 1983.

Crude inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, climbed 6.9 percent to 30.8 million in the week ended Dec. 26, EIA data showed. The gain left supplies at the highest level since February.

Seaway Pipeline

The new Seaway Twin pipeline is done and crude was delivered to Jones Creek in Texas on Dec. 21, Enterprise Products Partners said Dec. 31. It more than doubles capacity from Cushing to the Gulf Coast.

“The overall fundamentals are negative,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “We could be getting a bit of strength in WTI because of the Seaway opening. We should start seeing inventories fall at Cushing.”

Inventories of gasoline surged in the week ended Dec. 26 as production climbed to a record, EIA data showed.

Gasoline futures declined 3.87 cents, or 2.6 percent, to close at $1.4334 a gallon. It was the lowest settlement since April 28, 2009. Diesel decreased 3.79 cents, or 2.1 percent, to $1.7957, the lowest settle since Oct. 7, 2011.

Regular gasoline at U.S. pumps fell to the lowest level since May 2010. The average retail price slipped 0.9 cent to $2.231 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.

WTI may drop next week, a Bloomberg survey showed. Eighteen of 32 analysts and traders, or 56 percent, predicted a decrease, eight respondents forecast gains and six saw little change.

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