- Diesel falls to lowest level since 2004, gasoline to 2009 lows
- Saudi Aramco confirms it's studying a potential share sale
Oil dropped to a 12-year low as investors focused on volatility in Chinese markets after the country sought to quell losses in equities and stabilize its currency.
Futures fell on concern that turbulence in the world’s biggest energy consumer may curb fuel demand. Prices rose as much as 3.2 percent in early trading as China suspended an equity circuit breaker system, set a higher yuan reference rate and directed state-controlled funds to buy shares. New York oil rebounded briefly after U.S. payrolls surged and a pipeline to Cushing, Oklahoma, shut.
The turmoil in China is compounding the negative effect of growing U.S. crude stockpiles, which remain more than 120 million barrels above the five-year average. Analysts from Nomura Holdings Inc. to UBS Group AG predict oil may fall near $30 a barrel while the Organization of Petroleum Exporting Countries has effectively discarded output limits to defend market share amid a global glut.
"Despite the spectacular jobs numbers, oil has a lot going against it on both the supply and demand fronts," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "On the supply side we have the major producers beating up each other as they fight for market share. Worries about China and its neighbors are raising concerns about key demand centers."
West Texas Intermediate futures for February delivery declined 11 cents to settle at $33.16 a barrel on the New York Mercantile Exchange. It’s the lowest close since February 2004. Prices dropped 10 percent this week. Total volume traded was 45 percent above the 100-day average.
Brent for February settlement decreased 20 cents to end the session at $33.55 a barrel on the London-based ICE Futures Europe exchange. It’s the lowest close since June 2004. The European benchmark crude was at a 39 cent premium to WTI.
Enbridge Inc.’s Flanagan South pipeline that moves barrels from Illinois to Cushing, the delivery point for WTI, was shut Friday at 8 a.m. New York time, according to a notice from Genscape Inc. Crude supplies at the hub, the biggest in the U.S., climbed to a record 63.9 million barrels last week, according to Energy Information Administration data.
"The closure of a pipeline going into Cushing should give support to WTI," said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. "This will reduce the volume of oil being added to already excessive stockpiles there."
U.S. producers cut the number of rigs drilling for oil by 20 to 516 this week, the lowest since April 2009, according to data compiled by Baker Hughes Inc.
More than $4 trillion has been erased from the value of global equities this year amid renewed concern about China’s economy. The nation baffled investors with a seemingly contradictory approach to the yuan, fueling anxiety over the ability of policy makers to manage slowing growth.
U.S. payrolls rose by 292,000 in December, exceeding the highest forecast in a Bloomberg survey and adding to a 252,000 increase in November, a Labor Department report showed Friday.
Saudi Arabian Oil Co., the world’s largest crude producer, confirmed Friday it’s studying a potential sale of shares. The company controls about 260 billion barrels of oil reserves, more than 10 times the amount held by Exxon Mobil Corp., which has a market value of about $317 billion.
The move, first reported in The Economist, would mark an “historic shift of the oil industry,” said Jason Bordoff, the founding director of the Center on Global Energy Policy at Columbia University.
This week also saw rising tensions between Saudi Arabia and Iran following the execution of a prominent Shiite cleric by Riyadh. The breakdown in ties between the countries comes as Iran is preparing for the removal of sanctions. The nation plans to bolster shipments upon the lifting of the barriers.
February gasoline futures dropped 1.6 percent, to $1.1277 a gallon, the lowest close since February 2009. Diesel for February delivery decreased 1.3 percent to settle at $1.0521, the least since June 2004.