Oil Trades Near 12-Year Low as U.S. Surplus Seen Worsening

Will the Oil Price Collapse Mute Earnings Gains?
  • WTI oil touches $29.93 a barrel, lowest since December 2003
  • Diesel falls to lowest level since 2004, gasoline to 2009 lows

Oil dropped below $30 a barrel in New York for the first time in 12 years on concern that turmoil in China’s markets will curb fuel demand.

West Texas Intermediate crude tumbled to the lowest since December 2003. Concerns that China’s economic growth may slow has soured investors on the prospects for a quick recovery, turning hedge funds the least bullish in five years. A rapid appreciation of the U.S. dollar may send Brent, the global oil benchmark, to as low as $20 a barrel, Morgan Stanley said.

"The $20 number is something you have to talk about," Ed Morse, Citigroup managing director and global head of commodities research, said at conference in Calgary. "When you’ve seen a $10 price slide and WTI is trading just slightly above $30, the likelihood is fairly great. "

Oil extended a 70 percent drop since June 2014 as volatility in Chinese markets fueled a rout in global equities and U.S. supplies remained more than 120 million barrels above the five-year average. Iran is planning to add new barrels to an already glutted global market. The Saudi Arabian Oil Co., the world’s biggest crude exporter, confirmed on Jan. 8 it was studying options for a share sale.

WTI for February delivery fell 97 cents, or 3.1 percent, to close at $30.44 a barrel on the New York Mercantile Exchange. It was the lowest settlement since Dec. 1, 2003. The contract touched $29.93, the lowest intraday price since Dec. 2, 2003. Total volume traded was 47 percent above the 100-day average at 4:54 p.m.

Prices were little changed from the close after the API was said to report U.S. crude supplies fell 3.9 million barrels last week while fuel stockpiles climbed. WTI traded at $30.62 at 4:49 p.m.

Volatile Market

QuickTake Oil Prices

Brent for February settlement decreased 69 cents, or 2.2 percent, to $30.86 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since April 2004. The European benchmark crude closed at a 42 cent premium to WTI.

The CBOE Crude Oil Volatility Index, a gauge of anticipated swings in U.S. crude prices, rose Tuesday to the highest since 2009.

Oil’s rout sent energy equities lower. The Standard & Poor’s 500 Oil & Gas Exploration and Production Index dropped 1.9 percent to the lowest level since March 2009. Williams Cos., a pipeline company, dropped 12 percent, making it the worst performer on the S&P 500.

"It’s hard to be optimistic over the short term when you have as much inventory being put into storage as we’ve seen happening right now and when Iran is going to put a significant amount of oil onto the market,” Morse said.

Ample Stockpiles

U.S. crude stockpiles probably rose 2 million barrels last week, a Bloomberg survey showed before a report from the Energy Information Administration Wednesday. Gasoline inventories increased 2.5 million barrels in the week ended Jan. 8, the survey shows. Analysts project that supplies of distillate fuel, a category that includes heating oil and diesel, climbed 1.5 million barrels.

Fuel prices dropped to new lows. Gasoline for February delivery dropped 2.5 percent to $1.0848 a gallon, the lowest close since February 2009. Diesel for February delivery decreased 2.4 percent to settle at 99.01 cents, the lowest since June 2004.

Oil is particularly leveraged to the dollar and may fall between 10 to 25 percent if the currency gains 5 percent, Morgan Stanley analysts including Adam Longson said in a research note dated Monday. Societe Generale SA cut its average 2016 Brent forecast to $42.50 a barrel from $53.75 on Monday, while Bank of America Corp. trimmed its forecast to $46 a barrel from $50.

Crude also fell as the U.S. dollar strengthened, diminishing the appeal of commodities denominated in the currency. The Bloomberg Commodity Index, a gauge of 22 raw materials, slumped to the lowest level since 1999.

"There are no technicals holding up the price so we’re looking at a falling knife," said Jason Schenker, president of Prestige Economics LLC in Austin, Texas. "Concern about global economic sentiment and dollar strength are continuing to weigh on the market."

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