New York - Oil extended its decline from the lowest close in more than 12 years before weekly US government data forecast to show crude stockpiles expanded, exacerbating a global glut.
Futures lost as much as 4 percent in New York after settling Tuesday at the lowest since September 2003. Inventories probably increased by 2.75 million barrels last week, according to a Bloomberg survey before a report from the Energy Information Administration Thursday. Royal Dutch Shell, Europe’s biggest European oil company, expects fourth-quarter profit to drop at least 42 percent.
“Sentiment is very bearish,” Amrita Sen, chief oil analyst at consultants Energy Aspects said in a television interview. “The supply cuts are happening. It’s going to be slow, it’s not an overnight re-balancing. The futures market can go further down just because it is a very macro play.”
Crude is down 26 percent this year amid volatility in Chinese markets and speculation the removal of restrictions that capped Iran’s oil sales will help to prolong a worldwide oversupply. Shell, which is buying BG Group in the industry’s largest deal in a decade, said in a preliminary earnings statement that profit probably shrank to $1.6 billion to $1.9 billion from $3.3 billion a year earlier.
West Texas Intermediate for February delivery, which expires Wednesday, fell as much as $1.14 to $27.32 a barrel on the New York Mercantile Exchange and was at $27.77 at 9:49 a.m. London time. Monday’s transactions were booked with Tuesday’s because of the Martin Luther King Jr. holiday. The more-active March future slid 86 cents to $28.71.
Oil supplies
Brent for March settlement lost as much as 65 cents, or 2.3 percent, to $28.11 a barrel on the London-based ICE Futures Europe exchange. The contract rose 21 cents to $28.76 Tuesday. The European benchmark crude traded at a discount of 76 cents to WTI for March.
US crude stockpiles were about 100 million barrels above the five-year seasonal average at the end of 2015, according to EIA data. Supplies at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, increased for a 10th week through Jan. 8 to a record 64 million barrels.
Markets could “drown in oversupply,” sending prices even lower as demand growth slows and Iran boosts exports, according to the International Energy Agency.
The IEA trimmed 2016 estimates for global oil demand as China’s economic expansion weakens and raised forecasts for supplies outside of the Organisation of Petroleum Exporting Countries. While non-OPEC supply is set to drop 600 000 barrels a day in 2016, Iran’s comeback could fill that gap by the middle of the year. As a result, world markets may be left with a surplus of 1.5 million barrels a day in the first half, the IEA said.
Output trimmed
Cnooc, China’s largest offshore oil company, will trim output for the first time in more than a decade, prompting speculation the nation’s producers are succumbing to the global price war. Cnooc shares dropped 6.1 percent to HK$6.58, the lowest close since March 2009. PetroChina lost 6 percent and China Petroleum & Chemical Corp. fell 7 percent.
Prices may drop further as world powers lift sanctions on Iran and production in the Islamic Republic ramps up, UBS Group AG Chairman Axel Weber said in an interview. “I don’t see a bottoming out of oil prices - and a re-spiking - anytime soon,” Weber told Bloomberg Television’s Francine Lacqua and Hans Nichols at the World Economic Forum in Davos, Switzerland.
Crude is likely to stay at current levels of about $30 a barrel for some time as the energy market weathers a “supply shock,” Glencore Chairman Tony Hayward, also attending the gathering in Davos, said in an interview.
BLOOMBERG