Oil slid below US$45 a barrel for the first time since OPEC agreed to cut output in November last year, as US shale confounds the producer group’s attempts to prop up prices.
In less than 10 minutes yesterday, futures slumped more than US$1 amid a surge in volume.
They have collapsed 9.3 percent this week, sliding to the lowest level since Nov. 15 last year — two weeks before OPEC signed a six-month deal to curb production aimed at easing a global glut.
Photo: Bloomberg
The decline is being driven by expanding US output before OPEC is set to decide whether to prolong its cuts.
While OPEC’s curbs drove the oil price in early January to the highest level since July 2015, that increase encouraged US drillers to pump more. The result has been 11 weeks of expansion in US production in the longest run of gains since 2012.
Prices are still more than 50 percent below their peak in 2014, when surging shale output triggered crude oil’s biggest price collapse in a generation and left rival producers, such as Saudi Arabia, scrambling to protect their market share.
“We’re seeing a strong reaction and a change in mood,” Singapore-based IHS Energy vice president Victor Shum said.
Prices that “overshot” to the mid-to-high US$50s after the output deal are now “back to reality” amid surging US supplies, Shum said.
West Texas Intermediate for delivery next month dropped as much as US$1.76, or 3.9 percent, to US$43.76 a barrel on the New York Mercantile Exchange. It was at US$44.76 at 3:01pm in Hong Kong.
Total volume traded was more than quadruple the 100-day average. The contract lost US$2.30, or 4.8 percent, to close at US$45.52 on Thursday.
“There’s a lot of option-related activities so as the market falls through US$45, the holders of short, put positions need to hedge,” Societe Generale SA head of Asia commodities research Mark Keenan said. “They need to sell futures, and that can drive some very significant and volatile moves through those levels.”
Brent for July settlement slumped as much as US$1.74, or 3.6 percent, to US$46.64 a barrel on the London-based ICE Futures Europe.
Prices are down 7.8 percent this week, heading for a third weekly decline. The global benchmark crude traded at a premium of US$2.57 to July West Texas Intermediate.
US crude production rose to 9.29 million barrels last week, the highest level since August 2015, the Energy Information Administration said.
While OPEC is likely to prolong its curbs for a further six months, US shale supply remains a concern, the Nigerian oil minister said.
OPEC is due to meet on May 25 in Vienna to decide whether to extend supply cuts through the second half.
“There’s disappointment that the production cuts we’ve seen from OPEC and others has not had any impact at this stage on global inventory levels,” Sydney-based CMC Markets chief market analyst Ric Spooner said. “The market seems to be much further away from a balanced situation than some had previously forecast. There is a possibility that oil could be headed to the low US$40s range from here.”
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