The International Energy Agency said in its monthly report that the decision of the Organization of the Petroleum Exporting Countries last week t o continue to pump crude at record levels into an already oversupplied market is hurting producers outside the oil cartel, especially the shale industry in the U.S.
"As companies make further spending cuts in reaction to sub-$50/bbl oil, the impact on supplies…will be even more pronounced in the longer term,” the Paris-based agency said. However, it added that "as inventories continue to swell into 2016, there will still be a lot of oil weighing on the market.”
Brent crude, the global oil benchmark, fell 0.7% to $39.86 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.5% at $36.56 a barrel.
On Thursday, both benchmarks reached their lowest settlement value since Feb. 18, 2009.
The IEA, which advises the world’s biggest economies on energy policies, also projected that world oil demand growth will slow to 1.2 million barrels a day in 2016 after surging to 1.8 million barrels a day this year, as support from sharply falling oil prices begins to fade.
On the supply side, continued strong OPEC production and extra Iranian oil hitting the market next year will swell global inventories by 300 million barrels.
"Storage levels may provide yet another check on reality,” the IEA said.
Still, the unrelenting low oil prices have prompted some U.S. shale producers to turn off their taps, though not enough to rebalance the market, analysts said.
JP Morgan said that despite the supply adjustment already under way in the shale industry, oil markets look to start 2016 on a weak note. The market should tighten balances within the next 12 months.
In the near term, analysts expect oil price volatility to remain high, with the strong U.S. dollar an additional risk for the market. Next week, the U.S. Federal Reserve is widely expected to raise its interest rates, which could cause the greenback to appreciate against other currencies.
"If the Fed actually increases interest rates as we expect, the U.S. dollar could appreciate somewhat further. This could automatically have a negative effect on dollar denominated oil prices,” said Hans van Cleef, senior energy economist at ABN Amro.
"A test of the 2009 lows [$36.20/bbl] cannot be excluded,” he said.
Nymex reformulated gasoline blendstock—the benchmark gasoline contract—rose 1% to $1.29 a gallon. ICE gas oil changed hands at $361.25 a metric ton, down $3.75 from the previous settlement.
(Wall Street Journal)
