On Dec. 31, the last trading day of the year, the selloff in oil markets continued even as US data showed a greater-than-expected decline in inventory.
Oil is headed for its worst annual price drop since 2008 as the Organization of Petroleum Exporting Countries, known as OPEC, is refusing to cut production despite an abundant supply in the market. Slower demand from China and a booming US shale production are contributing factors to the plunge.
Crude oil prices have fallen by about 45 percent this year, and the key benchmark prices—West Texas Intermediate (WTI) and Brent—were down again Wednesday. Brent was down $1.71 at $56.19 that morning, while WTI fell $1.29 to $52.83.
US commercial crude-oil inventories declined by 1.8 million barrels to 385.5 million barrels in the week ended Dec. 26, according to the Energy Information Administration. Analysts expected a decline of 1.25 million barrels for the week.
The greater-than-expected decline, which suggests a tightening of supplies, caused the February contract to spike to about $53.50 a barrel, but prices soon fell back below $53 a barrel.
The American Petroleum Institute, in a less-watched metric, said Tuesday that US crude-oil industries rose to 387.3 million barrels.
Previously, OPEC has cut oil output to keep price afloat in times of supply abundance. But the group, comprised of 12 oil-producing nations (including Iran, Iraq, Nigeria, Saudi Arabia, Ecuador and Venezuela), has also shown reluctance to lower the supply for this year, fearing that its market share will be eroded by heightened competition from US suppliers.
“The main reason for oil’s decline is OPEC sitting on the fence,” said Giovanni Staunovo, an analyst at UBS AG in Zurich. “To prevent an excessive inventory build-up, non-OPEC supply growth, particularly US tight oil, needs to decelerate or stall temporarily.”
Sluggish global demand has been persistent throughout 2014, with a newer indicator from China also likely contributing to sinking prices. Data activity in the China’s factories shrank for the first time in almost a year, according to an HSBC survey.
The HSBC/Markit Purchasing Managers’ Index (PMI) for December 2014 came in at 49.6, down from 50 in November, the report said. Numbers below 50 indicate contraction.
China is the world’s second-largest consumer of oil, and its manufacturing sector also accounts for a large chunk of its total fuel consumption.
The US Commerce Department confirmed Tuesday that it has been more flexible to energy companies with ultralight oil export applications pending before the agency.
The shale boom in the US has resulted in surging oil production in the world’s largest economy, giving stiff competition to other global oil producers particularly in the Middle East, where a large part of OPEC is centered. However, US oil exports have been banned so far and the industry has been lobbying to free up export regulations.
(With reports from MarketWatch, USA Today)
(www.asianjournal.com)
(LA Weekend January 3-6, 2015 Sec. D pg.2)
