Oil drops below $45 as U.S. stockpiles seen worsening collapse

Oil drops below $45 as U.S. stockpiles seen worsening collapse

By BEN SHARPLES and GRANT SMITH

MELBOURNE and LONDON (Bloomberg) -- Oil extended losses to trade below $45/bbl amid speculation that U.S. crude stockpiles will increase, exacerbating a global supply glut that’s driven prices to the lowest in more than five and a half years.

Futures fell as much as 4% in New York, declining for a third day. Crude inventories probably gained by 1.75 MMbbl last week, a Bloomberg News survey showed before government data. The United Arab Emirates, a member of the Organization of Petroleum Exporting Countries, will continue to expand output capacity, while shale drillers will probably be the first to curb production as prices fall, according to Energy Minister Suhail Al Mazrouei.

Oil slumped almost 50% last year, the most since the 2008 financial crisis, as the U.S. pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production. Goldman Sachs Group said crude needs to drop to $40/bbl to “re-balance” the market, while Societe Generale SA also reduced its price forecasts.

“Prices continue to free-fall and there is little that can stop them,” Amrita Sen, chief analyst at consultants Energy Aspects said in a report. “OPEC remains the only factor that can stabilize markets in the short term. But with the group out of the picture, the market is looking elsewhere for a tangible reaction.”

West Texas Intermediate for February delivery decreased as much as $1.86 to $44.21/bbl in electronic trading on the New York Mercantile Exchange and was at $44.83 at 10:44 a.m. London time. The contract lost $2.29 to $46.07 on Jan. 12, the lowest close since April 2009. The volume of all futures traded was more than double the 100-day average for the time of day.

U.S. Supplies

Brent for February settlement slid as much as $2.20, or 4.6%, to $45.23/bbl on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of as little as 79 cents to WTI, the narrowest since July 2013.

U.S. crude stockpiles probably rose to 384.1 MMbbl in the week ended Jan. 9, according to the median estimate in the Bloomberg survey of six analysts before the Energy Information Administration’s report. Supplies have climbed to almost 8% above the five-year average level for this time of year, data from the Energy Department’s statistical arm show.

Production accelerated to 9.14 MMbopd through Dec. 12, the most in weekly EIA records that started in January 1983. The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

OPEC Output

The U.A.E. will continue plans to boost its production capacity to 3.5 MMbopd in 2017, said Al Mazrouei said. The country currently has a capacity of 3 MMbopd and pumped 2.7 MMbopd last month, according to data compiled by Bloomberg.

OPEC nations can withstand a drop in crude prices while “those who are producing the most expensive oil, the rationale and the rules of the market say that they should be the first to pull or reduce their production,” said Al Mazrouei.

OPEC, whose 12 members supply about 40% of the world’s oil, agreed to maintain their collective output target at 30 MMbopd at a Nov. 27 meeting in Vienna. Qatar estimates the global surplus at 2 MMbopd.

In China, the world’s biggest oil consumer after the U.S., crude imports surged to a new high in December, capping a record for last year. Overseas purchases rose 19.5% from the previous month to 30.4 million metric tons, according to preliminary data from the General Administration of Customs in Beijing. For 2014, imports climbed 9.5% to 310 million tons, or about 6.2 MMbopd.