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Oil Extends Drop Below $50 as U.S. Stockpiles Seen Swelling Glut

12:09PM Jan 06, 2015

Oil extended losses below $50 a barrel amid speculation that U.S. crude inventories will expand, exacerbating a global supply glut that’s driven prices to the lowest level since April 2009.

Futures fell as much as 3.1 percent in New York, declining for a fourth day. Stockpiles in the world’s biggest oil consumer probably rose by 750,000 barrels last week, a Bloomberg News survey shows. A gauge of the dollar held near a nine-year high, diminishing the investment appeal of commodities, as the Federal Reserve weighs raising interest rates and amid concern that Greece will leave Europe’s currency union.

Oil slumped almost 50 percent in 2014, the most since the 2008 financial crisis, after the Organization of Petroleum Exporting Countries resisted calls to cut output as it competes with U.S. producers. The market faces “more problems” this year, according to Morgan Stanley, with surging output in Russia and Iraq contributing to a surplus that Qatar estimates at 2 million barrels a day.

“The market is obsessed with the supply side,” Hans van Cleef, energy economist at ABN Amro Bank NV in Amsterdam, said by phone. “Prices have dropped too fast and too far, but with the market this negative it’s hard to see a trigger which could turn the sentiment. If U.S. inventories are higher than expected, we could see Brent below $50 this week.”

West Texas Intermediate for February delivery dropped as much as $1.57 to $48.47 a barrel in electronic trading on the New York Mercantile Exchange, the lowest since April 2009, and was at $48.86 at 10:35 a.m. London time. The volume of all futures traded was about 71 percent above the 100-day average for the time of day.

U.S. Stockpiles

Brent for February settlement decreased as much as $1.88, or 3.5 percent, to $51.23 a barrel on the London-based ICE Futures Europe exchange, the lowest since May 2009. It lost $3.31, or 5.9 percent, to $53.11 yesterday. The European benchmark crude traded at a premium of $2.90 to WTI today.

U.S. crude inventories probably increased to 386.2 million barrels in the week ended Jan. 2, according to the median estimate in the Bloomberg survey of eight analysts before a report from the Energy Information Administration tomorrow.

Distillate stockpiles, including heating oil and diesel, are projected to have gained by 2.13 million barrels, the survey shows, while gasoline supplies may have climbed 4.5 million.

The euro weakened against the dollar amid speculation the European Central Bank has moved closer to large-scale sovereign-bond purchases. Greece began an election campaign that Prime Minister Antonis Samaras said may lead to an exit from the euro region should the opposition Syriza party win.

Saudi Discount

Saudi Arabia, the world’s largest oil exporter, raised prices for shipping crude to Asia in February. Its main Arab Light grade will sell for $1.40 a barrel below the average of Middle East benchmark Oman and Dubai grades, according to a statement yesterday.

Last month, state-owned Saudi Arabian Oil Co. offered a $2 discount for Arab Light exports, the steepest in at least 14 years. The move was followed by Iraq, Kuwait and Iran, bolstering speculation that OPEC’s Middle Eastern producers were prepared to let prices fall to defend market share amid the North American shale boom.

U.S. output climbed to 9.14 million barrels a day through Dec. 12, the highest in weekly data that started in January 1983, according to the EIA. OPEC’s 12 members, which supply about 40 percent of the world’s oil, pumped 30.24 million a day in December, exceeding their collective target of 30 million for a seventh straight month, a Bloomberg separate survey of companies, producers and analysts showed.

Production may expand from fields in West Africa, Latin America, the U.S. and Canada in addition to increased supplies from Russia and Iraq, Morgan Stanley said yesterday in a report. Iran may boost overseas exports by about 500,000 barrels a day if international sanctions are lifted, the bank said.