Brent crude oil futures dropped below $59 a barrel in intraday trade on Tuesday, the lowest since may 2009, after latest data showed Chinese manufacturing contracted in December for the first time in seven months, worsening demand concerns amid a supply glut, especially when both the US and Organization of Petroleum Exporting Countries (Opec) haven’t shown any signs of curtailing output in a rush to preserve market share.
Weakening currencies of emerging markets, including India, which are expected to drive global oil demand growth, also weighed on demand, as any depreciation of their currencies against the dollar makes oil more expensive for them.
Brent crude fell as low as $58.50, its weakest since May 2009. As of 1221 GMT it was down $2.12 at $58.94 while U.S. crude was down $1.73 at $54.18 per barrel. Brent crude has shed almost half since hitting this year’s peak of $115 per barrel in June.
According to the median in a Bloomberg survey of 17 analysts, brent will slide to as low as $50 a barrel in 2015.
Oil market sentiments remained dampened on Tuesday amid mounting speculation that US producers were unlikely to retreat from a price war with the Opec, as production in the world’s largest economy has already scaled the highest in more than 30 years.
The Energy Information Administration data revealed US pumped 9.12 million barrels of crude oil per day in the week through December 5, the highest in weekly records dating back to January 1983. According to a Goldman Sachs report, US producers are gaining from a fall in costs, almost in sync with the declining prices.
In a meeting on November 27 in Vienna, key members of Opec — together accounting for roughly 40% of global supply — have resisted calls from smaller players within the group to cut down on output.
UAE energy minister Suhail Al-Mazrouei had said Opec would not consider holding an emergency meeting over the next three months and that the group could stick to its decision even if prices slide to $40 a barrel.
Moreover, International Energy Agency last week effected another downward revision of global oil demand, saying it will rise only 230,000 barrels a day in 2015, while supply outside Opec is expected to rise by 1.3 million barrels per day to 57.8 million. Demand for Opec crude is forecast to sink by 300,000 bpd next year to 28.9 million.
Analysts said weakening currencies of emerging markets pressured oil prices. The central bank of Russia, a key oil producer, hiked its benchmark interest rate by 6.5 percentage points to 17% on Tuesday to check a fall in the rouble. In Indonesia, the rupiah depreciated to its meanest in 16 years against the dollar, prompting Bank of Indonesia to intervene. In India, the rupee dropped to an 11-month low of 63.45 intraday.