Oil prices hit fresh 5-1/2-year lows; Brent below $56

5 Jan 2015 | Author: | No comments yet »

Oil Extends Selloff on Supply Glut, Cuts in Price Forecasts.

SINGAPORE — US crude and Brent futures dropped to fresh five-and-a-half-year lows on Monday as worry about a surplus of global supply amid weak demand continued to drag on oil markets.Oil slid further in Asian trade Monday on concerns that the glut in global oil supply will extend well into this year, and after major brokerages including Citigroup slashed their oil price forecasts for 2015 and 2016.

The contract — which lost 1.1% in New York Mercantile Exchange action Friday — traded as low as $51.40 earlier in the day, according to Reuters data, marking the weakest level for a front-month Nymex oil future since mid 2009. Organisation of the Petroleum Exporting Countries’ (Opec’s) decision in November to maintain output had accelerated oil’s losses earlier, while record-high Russian production and the highest Iraqi exports since 1980 added to the concern about oversupply. The moves came as the euro EURUSD, -0.43% retreated sharply, helping send the ICE U.S. dollar index DXY, -0.01% up 0.4% for the day to 91.45, according to FactSet. The two oil benchmarks, Brent and West Texas Intermediate (WTI), have now lost more than half of their value from peaks hit in the middle of last year. “Oil demand is unlikely be robust this year when we look at the state of economies in China, Japan and Europe,” Newedge Japan commodity sales manager Yusuke Seta said. “Theoretically speaking, a weaker euro puts downward pressure on Brent, although quantitative easing in the eurozone could possibly put more liquidity in the region, which may subsequently flow into Brent,” Mr Seta said. A rising U.S. currency makes dollar-denominated crude more expensive to holders of euros, yen and other units, often depressing demand for the futures.

Fighting was reported near the country’s biggest oil export port Es Sider in the east even as a week-long fire at the port’s storage tanks was extinguished on Friday. Last week it hit its lowest settle value since May 15, 2009. “Three massive factors have come to a head as 2015 opens: the U.S. shale revolution, the Saudi refusal to cede market share to other producers and a weak world economy,” said Edward Morse, head of commodities research at Citigroup. Citigroup has lowered its average Brent crude oil forecast for 2015 to $63 a barrel from $80 a barrel, and its average Nymex crude oil forecast for 2015 to $55 a barrel from $72 a barrel, Mr. But oil markets were also pressured by bearish news reports including weak manufacturing data from China and disappointing economic data from the U.S. Rising U.S. oil inventories at a time of strong winter demand, and reports that Russian oil output has hit post-Soviet records while Iraqi oil exports are at their highest since the 1980s have further weighed on oil prices since last week. “Although this year will be the most challenging for the industry in a generation, we believe that there will be a recovery in oil prices later in 2015,” Neil Beveridge, senior analyst at Bernstein Research said.

Nymex reformulated gasoline blendstock for February—the benchmark gasoline contract—fell 165 points to $1.4169 a gallon, while February diesel traded at $1.7793, 164 points lower.

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