Oil Drops Below $58

Oil Drops Below $58Oil Drops Below $58

Benchmark US oil prices extended losses below $58 a barrel as the International Energy Agency cut its global demand forecast for the fourth time in five months.

West Texas Intermediate (WTI) crude capped a weekly decline of 12 percent while Brent lost 10 percent, Bloomberg said in a report.

Brent for January settlement slid $1.83, or 2.9 percent, to $61.85 a barrel on the London-based ICE Futures Europe exchange, the lowest since July 2009. Prices are down 44 percent in 2014. Brent traded $4.04 higher than WTI on the ICE, up from $3.73.

The International Energy Association (IEA) reduced its estimate for oil demand growth in 2015 by 230,000 barrels a day, the agency said in a report today. US output, already at a three-decade high, will continue to rise in 2015, the IEA said.

“In the short term, supply is still stronger than demand,” said Gareth Lewis-Davies, a London-based analyst at BNP Paribas SA. “We are going to see further inventory builds in the first half, hence the realization of further pressure on oil prices.”

Both benchmarks have collapsed about 20 percent since Nov. 26, the day before the OPEC agreed to leave its production limit unchanged at 30 million barrels a day. Saudi Arabia, Iraq and Kuwait this month deepened discounts on shipments to Asia, bolstering speculation that they are fighting for market share.

  Negative Momentum

Speculation is mounting that crude prices could crash to $55 by the next week. “By taking out $58, oil is moving towards the next target $55,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “It’s such an emotional selloff, and the even numbers are going to be the magic numbers.”

“We are in for lower prices for the foreseeable future,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “The Saudis do not want to make any kind of cut whatsoever. You are really getting into a price war.”

However, the IEA, the Paris-based adviser to 29 nations, boosted projections for supplies outside OPEC in 2015 by 200,000 barrels a day, forecasting output will expand by 1.3 million barrels a day to 57.8 million a day. Production rising faster than demand could strain some nations’ ability to store oil by the middle of next year, it predicted.

The IEA cut projections for the amount of crude OPEC will need to provide next year by 300,000 barrels a day to 28.9 million. OPEC gave the same forecast, the lowest since 2003, in its monthly report on Dec. 10.