Crude prices remained near 7-year lows in early Asian trading on Tuesday as OPEC continues to pump near record oil to defend market share, compounding a glut that is seeing hundreds of thousands of barrels produced every day in excess of demand.
Benchmark Brent and WTI futures both fell over 6 per cent the previous session to reach 2015 lows, and they are closing in on levels last seen during the credit crunch of 2008/2009. Should they break through 2008/2009 lows, the next downward target would be levels not seen since the early 2000s.
US crude was trading at $37.83 a barrel at 0032 GMT, up 18 cents from its last settlement but close to the 2015 and 7-year lows of the previous session.
“The decision by OPEC-members to keep oil production output at record high levels … suggested that the organisation was effectively abandoning its long-term strategy of limiting production and acting as a cartel, leading to more downward pressures on oil prices in the short term,” said Sanjiv Shah, Chief Investment Officer of Sun Global Investments.
The Organization of the Petroleum Exporting Countries failed to agree on an oil production ceiling last Friday after a disagreement between Saudi Arabia and Iran meant that the group for the first time in decades didn’t even mention an output quota, which previously stood at 30 million barrels per day (bpd).
OPEC’s output of more than 30 million bpd has compounded an oil glut, pushing production 0.5 million to 2 million bpd beyond demand and putting many producers under pressure, especially small-sized US shale drillers that have piled up large amounts of debt.
“As we see higher oil output from (non-OPEC) Russia, Iraq and, most importantly, Saudi Arabia, we are likely to see a continued pressure from the resultant low oil prices. This will affect US shale producers as well and therefore an increase in new investment in the sector is unlikely. This will support prices in the medium term,” Shah said.