Brent oil posts lowest close since 2004

20 Jan 2016 | Author: | No comments yet »

Brent oil posts lowest close since 2004.

The global oil benchmark closed at its lowest level in more than 11 years Monday as fears over a global glut of crude and uncertain demand kept pressure on most of the hard-hit energy complex.

With crude oil prices losing nearly 50 per cent from their peak levels and touching 11-year lows on Monday, Goldman Sachs and CLSA have said the prices could further fall to touch $20 a barrel.Profits from stockpiling crude at sea, a tactic used by oil traders in 2008 to weather the market rout, will probably remain elusive during the current slump, according to Barclays Plc.Dealers said the cost of crude was on course in December to register its biggest monthly fall since the collapse of the US investment bank Lehman Brothers in October 2008.

Brent LCOG6, -1.79% futures for February delivery on London’s ICE exchange fell 53 cents, or 1.4%, to finish at $36.35 a barrel—the lowest settlement since July 5, 2004, according to Dow Jones. The latest fall in prices was prompted by concerns that a market already awash with oil from the two biggest suppliers – Saudi Arabia and Russia – would receive additional supply from the lifting of sanctions against Iran and the ending of a 40-year US export ban.

In London, the price of benchmark Brent crude hit a low of $36.05 (£24.22) a barrel on Monday, its lowest since 2004 and below the low point reached during the financial crisis of 2008-09. The slide comes amid fears of a slowdown in global growth, which could impact oil demand coupled with a supply glut, and the Organization of the Petroleum Exporting Countries (Opec) holding production steady. The January WTI crude contract CLF6, -0.20% which expired Monday, gained one cent to close at $34.74 a barrel. “On the supply side, U.S. shale oil continues to flood the market and traders fear the influx of Iranian oil after sanctions are lifted next year,” said Matt Weller, senior market analyst at Forex.com, in a note. “Meanwhile, the economic slowdown in China and Europe, as well as warm global temperatures as a result of climate change and a relatively warm El Niño conditions in the U.S., have reduced demand,” Weller added.

Oil contracts for prompt delivery have been cheaper than later supplies since July 2014 as the U.S. shale boom and OPEC’s resolve to keep market share propelled global inventories to a record. Exactly how low oil prices will continue to fall isn’t clear with some industry analysts such as U.S. bank Goldman Sachs insisting $20 oil is possible in 2016. In a recent note, Christopher Wood, managing director and equity strategist at CLSA, maintained a bearish view on oil and expects it to hit the $20-a-barrel mark going ahead. “With oil having now broken through the key psychological $40 support level, which the bulls were hoping would be the bottom, it is appropriate for ‘GREED & fear’ to repeat the bearish view maintained here and lower the formal target to $20. Oil prices have slumped by a fifth since a meeting of the Opec cartel on 4 December failed to introduce any curbs on production, and are down by almost 40% in 2015 so far.

Some others believe if Brent drops by another $1.50 a barrel, it could trigger traders and money managers to enter the market, in turn kick-starting a mini rally. It remains remarkable one year after the oil collapse began how little the US production has come down as the marginal cost of shale continues to decline,” Wood says.

February futures are about $1.28 less than those for April. “The contango in Brent could widen from current levels and persist longer than in 2008-2009,” said Miswin Mahesh, an analyst at Barclays in London. “However, floating storage may not be utilized to the same extent as 2008-2009, when more than 100 million barrels of oil was stored in tankers.” The spread between the first and third month is only half the level seen in December 2008, Barclays said. Patricia Mohr, vice-president of cconomics and commoditymarket specialist at Scotiabank, said: “2016 will remain challenging for most commodity producers – with global growth expected to remain lacklustre at best.

Adding: “US crude oil production peaked at 9.61 million barrels per day in early June and has since fallen by only 4.5 per cent to 9.18 million recently. Mohr said the oil price could drop to $30 a barrel in the near term. “Unlike previous experience, Opec did not even set a sales quota at the December meeting, with countries now largely producing at will,” said Mohr.

Data showed that the number of rigs rose by 17 last week, suggesting the predicted free fall in production that was forecast for early 2016 won’t occur, with a much longer production tail-off more likely. The expense of hiring a supertanker to haul cargo from the Persian Gulf to Asia is about 40 percent higher than in 2008 because stronger fuel consumption is supporting demand for ships, the bank estimates. January natural gas NGF16, +0.58% rose 14.4 cents, or 8.2%, to $1.911 per million British thermal units, marking the biggest one-day percentage gain since January.

However, Shell said on Monday that it is pressing ahead with its $60bn takeover of BG Group despite doubts among some shareholders about the deal’s viability given the falling oil price. Jonathan Loynes, chief European economist at Capital Economics, said: “The inconclusive result of the Spanish general election is set to trigger a period of political uncertainty which could slow the country’s economic recovery.

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