NEW YORK – Oil extended losses below $50 a barrel amid speculation that US inventories will expand, deepening a global supply glut that’s driven prices to a five-year low.
Futures declined for a fourth day. Stockpiles in the world’s biggest oil consumer probably rose by 700,000 barrels last week, a Bloomberg News survey shows before a government report on Wednesday. Oil slumped almost 50% in 2014, the most since the 2008 financial crisis, after the Organization of Petroleum Exporting Countries (OPEC) resisted calls to cut output as it competes with US producers. The market faces “more problems” this year, according to Morgan Stanley, with surging output in Russia and Iraq contributing to a surplus that Qatar estimates at 2 million barrels a day.
“The path of least resistance is lower,” said Bill O’Grady, chief market strategist at Confluence Investment Management in S. Louis, which oversees $2.4 billion. “There is no bullish news. OPEC refuses to cut production and there is no evidence of falling production outside of OPEC.”
“The market is obsessed with the supply side,” Hans van Cleef, energy economist at ABN Amro Bank NV in Amsterdam, said by phone. “Prices have dropped too fast and too far, but with the market this negative it’s hard to see a trigger which could turn the sentiment. If US inventories are higher than expected, we could see Brent below $50 this week.”
US crude inventories probably increased to 386.2 million barrels in the week ended January 2. Inventories of crude and gasoline were at their highest seasonal level since EIA weekly data started.
The euro weakened against the dollar amid speculation the European Central Bank has moved closer to large-scale sovereign-bond purchases and as the Federal Reserve weighs raising interest rates. The Bloomberg Dollar Spot Index was at 1,141.22 after climbing to 1,143.4 on Monday, the highest since March 2009.
“The potential for more easing from Europe is putting more upward pressure on the dollar and downward pressure on oil,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. Saudi Arabia, the biggest OPEC producer, will keep a “solid will” and maintain the nation’s stability even with falling crude prices, King Abdullah said on Tuesday in a speech read by his crown prince.
US output climbed to 9.14 million barrels a day through December 12, the highest in weekly estimates that started in January 1983, according to the EIA. OPEC’s 12 members, which supply about 40% of the world’s oil, pumped 30.24 million a day in December, exceeding their collective target of 30 million for a seventh straight month. bloomberg
