Concern over global supply glut triggers fall in oil prices

As signs of potential global economic slowdown in 2016 trigger fears of global supply glut, price of Brent Crude oil falls to 11 year lows

Photo by: Reuters
Photo by: Reuters

A worker walks down the stairs of an oil tank at Turkey's Mediterranean port of Ceyhan, February 19, 2014

Oil fell 3 percent on Monday, with global benchmark Brent back near 11-year lows as last week's short-covering dried up and players worried that crude prices had more room to swoon.

US gasoline futures slid about 2 percent as the selloff extended to refined oil products as well, although heating oil rebounded on expectations of colder weather.

Crude futures slumped in Asian trading as Japanese data showed a 46-year low in oil sales in the world's fourth largest crude buyer. They slid more in the New York session, as some traders reckoned the two-day pre-Christmas rebound, where crude rose about $2 a barrel, had been overdone.

"Volume isn't great, which is typical for this time of year, and most guys are either flat on their books and positioning themselves for a weaker first quarter in 2016," said Tariq Zahir, an oil bear at Tyche Capital Advisors in Long Island, New York.

Brent was down 98 cents at $36.93 a barrel, falling to a session low of $36.56 earlier. It hit a 2004 low of $35.98 on Tuesday.

US crude's West Texas Intermediate (WTI) futures fell $1.25 to $36.85, slipping to $36.66 at one point. Oil bears are looking to beat WTI's previous low of $32.40 in December 2008.

"A bearish trading stance is still being advised as we still view an ultimate price decline in nearby WTI and Brent futures to the $32.50 area," said Jim Ritterbusch at Chicago-based oil markets consultancy Ritterbusch & Associates.

Figures from the Organization of the Petroleum Exporting Countries imply an oil glut of more than 2 million barrels per day, equal to more than 2 percent of world demand.

Crude prices have plunged nearly 70 percent from highs above $100 a barrel in June 2014 after OPEC, led by top exporter Saudi Arabia, dropped its longstanding policy of cutting output to support prices in favour of defending market share.

While the collapse has partly achieved OPEC's goals by curbing growth of competing supplies, it has also put the finances of oil producing nations under strain.

Saudi Arabia announced plans to shrink a record state budget deficit with spending cuts and a drive to raise revenues from sources other than oil. Still, state-owned Saudi Aramco said it will continue investing in oil and gas production, expecting a price rebound in 2016.