Oil hits fresh 5½-year low below $57 on supply glut

By: | Published: December 31, 2014 1:56 AM

Brent crude oil dropped to a fresh five-and-a-half-year low in intraday trade on Tuesday, falling below $57 a barrel...

Brent crude oil dropped to a fresh five-and-a-half-year low in intraday trade on Tuesday, falling below $57 a barrel, as investors wagered in the absence of any credible signs of a rebound in demand, a glut would continue well into the next year despite threats to Libyan supplies from a civil war there.

Brent dropped to $1.14 to $56.74 a barrel — its meanest since May 2009 — before clawing back some gains to trade around $57.70 by 1215 GMT. US crude futures declined 20 cents to $53.41 a barrel after dipping to $52.70 — its lowest since May 2009 as well. Brent crude has declined more than 45% this year and is heading for its worst year since 2008 when a financial crisis roiled the global economy and dented energy demand.

A fall in crude oil prices worsened since November when the Organisation of Petroleum Exporting Countries (Opec), accounting for roughly 40% of global supplies, chose not to cut production, signalling a price war with producers outside the cartel, especially US shale oil drillers. The global market is witnessing a glut, caused by huge US stockpiles and Opec’s reluctance to cut output despite slowing demand across leading consumers, including China.

The concerns of over-supply have far eclipsed latest worries that supplies from Libya could be disrupted by recent violence between forces loyal to the elected government and separatists.

US crude stocks are projected to stay flat at last week’s level of 387.2 million barrels, the highest at least since the recording of data in 1982. Oil market sentiments have also remained dampened due to mounting speculations that US producers were unlikely to retreat from a price war with the Opec.

Moreover, the International Energy Agency earlier this month effected another downward revision of global oil demand, saying it would rise only 230 000 barrels a day in 2015, while supply outside Opec is expected to climb by 1.3 million barrels per day to 57.8 million. Demand for Opec crude was forecast to sink by 300 000 bpd next year to 28.9 million.

Compounding investors’ concerns, Morgan Stanley forecast in December that in the worst worst-case scenario, the North Sea crude benchmark could drop to as low as $43 a barrel in the second quarter of next year.

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