Global Crude Falls Below $50 as U.S. Supply Seen Adding to Glut

Oil fell below $50 a barrel in London for the first time since May 2009 amid speculation that U.S. inventories will increase, exacerbating a global supply glut that’s driven prices to a five-year low.

Brent futures dropped as much as 2.8 percent. Crude stockpiles in the world’s biggest consumer, already at the highest for the time of year in three decades, probably expanded by 700,000 barrels last week, a Bloomberg News survey showed before an Energy Information Administration report today. China, the second-largest oil user, won’t drive a market rebound in 2015 as its net imports will slow, according to Citigroup Inc.

Oil slumped by 48 percent last year, the most since the 2008 financial crisis, as the U.S. pumped at the fastest pace in more than three decades and the Organization of Petroleum Exporting Countries decided to maintain its output ceiling. The market’s oversupply may take “months or years” to be absorbed, United Arab Emirates Energy Minister Suhail Al Mazrouei said.

“The market is looking for the appropriate equilibrium level post OPEC’s decision to hand over control of the price back to market,” Harry Tchilinguirian, London-based head of commodity markets at BNP Paribas SA, said by e-mail. “It has not found it yet. The mood will probably remain negative today given the very large build in U.S. product inventories.”

Brent for February settlement slid as much as $1.44 to $49.66 a barrel on the London-based ICE Futures Europe exchange, the lowest since April 2009, and was at $50.48 at 9:28 a.m. London time. The European benchmark crude traded at a premium of $3.04 to West Texas Intermediate.

U.S. Supplies

WTI for February delivery declined as much as $1.10, or 2.3 percent, to $46.83 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since April 2009. The volume of all futures traded was 55 percent above the 100-day average for the time of day.

Implied volatility for at-the-money options in the front-month WTI contract rose to 60.2 percent this week, the highest level in more than three years, data compiled by Bloomberg show. It’s about 58 percent today, while Brent’s volatility is almost 49 percent.

U.S. crude inventories probably climbed to 386.2 million barrels in the week ended Jan. 2, according to the median estimate in the Bloomberg survey of nine analysts before the Energy Information Administration’s weekly report today. Supplies in the previous period were about 12 percent above the five-year average level for this time of year.

Chinese Imports

Distillate stockpiles, including heating oil and diesel, are projected to have gained by 1.75 million barrels, the survey shows, while gasoline supplies may have climbed 4.5 million.

Supplies at Cushing, Oklahoma, the delivery point for WTI contracts and the biggest U.S. oil-storage hub, gained by 482,000 barrels last week, the American Petroleum Institute said, according to a Twitter posting by Dominick Chirichella, a founding partner of Energy Management Institute in New York. Crude stockpiles nationwide shrank by 4 million, the industry group in Washington reported, according to the posts.

China’s net oil imports will probably rise 3.3 percent this year, compared with 8.9 percent in 2014, as “a slower build-out of refining capacity and record commercial storage builds in 2014 are likely to limit growth,” Citigroup strategists including Ivan Szpakowski in Hong Kong said in a research note.

‘Needs Time’

Oil’s oversupply “needs time to be absorbed” and prices this year may depend on output growth from non-OPEC producers, the U.A.E.’s Al Mazrouei said, according to The National, an Abu Dhabi daily. Qatar, another of OPEC’s 12 members, has estimated the global surplus at 2 million barrels a day.

Iran has held talks with Russia to reduce supply from the world’s biggest producer, according to Iranian Oil Minister Bijan Namdar Zanganeh. The parties haven’t reached a conclusion yet, the minister was cited by state-run Mehr news agency as saying.

While consensus within OPEC to stop the price decline is important, an emergency meeting of the group “won’t in itself solve problems,” Zanganeh said.

OPEC, which pumps about 40 percent of the world’s oil, agreed to maintain its output quota at 30 million barrels a day at a Nov. 27 gathering. It’s next scheduled to meet on June 5.

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