Brent crude extends slide to its lowest price since 2012

2014-10-06 10:39:43

Brent crude extended its slump to the lowest price since 2012 and West Texas Intermediate traded below $90 for a second day amid speculation that OPEC won’t cut production to reduce oversupply.

Futures slid as much as 0.6 percent in London, dropping for a fifth day and narrowing the premium to the U.S. benchmark to the least in more than a year. The Organization of Petroleum Exporting Countries is unlikely to reduce output before its Nov. 27 meeting, even as supply exceeds demand, according to a person familiar with OPEC policy. There is little to prevent a further sell-off in prices, even though fundamentals didn’t deteriorate in the past week, Morgan Stanley said in a report.

“There’s uncertainty in the market about what OPEC will do with its output,” Will Yun, a commodities analyst at Hyundai Futures Co., said by phone today in Seoul. “If OPEC cuts production, it will support prices, but unless demand picks up, the price change will be limited.”

Brent for November settlement fell as much as 53 cents to $91.78 a barrel on the London-based ICE Futures Europe exchange and was at $92.14 at 2:39 p.m. Singapore time. The contract slid 1.2 percent on Oct. 3 to $92.31, the lowest settlement since June 2012. Prices are down 17 percent this year.

WTI for November delivery rose 7 cents to $89.81 a barrel in electronic trading on the New York Mercantile Exchange. The volume of all futures traded was about 20 percent below the 100-day average.

Below $90

WTI sank below $90 for the first time since April 2013 on Oct. 2 after Saudi Arabia, the world’s largest oil exporter, cut some prices to Asia last month to the lowest in almost six years. U.S. benchmark futures traded at discount of $2.29 to Brent today, the narrowest based on settlement prices since August last year.

OPEC, which supplies about 40 percent of the world’s oil, pumped 30.935 million barrels a day in September, the most since August last year, according to a Bloomberg News survey of producers and analysts.

“We would be surprised to see any large reduction in production, other than for seasonal demand or outages,” before an OPEC meeting in November, Morgan Stanley analysts including New York-based Adam Longson said in an report e-mailed today.

‘Mostly Speculative’

Oil’s recent slide was “mostly speculative,” according to the bank. While the global oil market remains oversupplied and lower OPEC production may be required, the bank said it saw no signs of deterioration in fundamentals in the past week.

U.S. production is near the highest level since 1986, government data shows. Crude output reached 8.867 million barrels a day in the week ended Sept. 19, the most since March 1986. Production will climb to 9.53 million in 2015, a 45-year high, the Energy Information Administration said in its monthly Short-Term Energy Outlook on Sept. 9.

The International Energy Agency cut its projections last month for demand growth in 2014 and 2015, citing a weakening economic outlook. The World Bank lowered its forecasts for growth in developing East Asia this year and next as China’s expansion moderates and policy makers brace for tighter global monetary conditions.

Hedge Funds

The region is forecast to grow 6.9 percent in 2014 and 2015, down from 7.1 percent projected in April, the Washington-based lender said in its East Asia and Pacific Economic Update released today. China will expand 7.4 percent this year and 7.2 percent next year, compared with 7.6 percent and 7.5 percent previously forecast, the report showed.

Hedge funds increased bets on rising U.S. oil prices just before they tumbled in the biggest weekly decline in two months. Money managers boosted net-long positions in WTI by 4.1 percent in the seven days ended Sept. 30. Long positions climbed 2.7 percent, U.S. Commodity Futures Trading Commission data show.

Goldman Sachs Group Inc. said it’s losing confidence in its forecast that Brent crude will recover to $100 a barrel next year. While the Wall Street bank is maintaining its projection for now, it says that a lack of signs of accelerating global economic growth and uncertainty over OPEC’s production plans are weakening its conviction.