By Grant Smith and Moming Zhou for Bloomberg –
West Texas Intermediate oil fell for the fourth time in five days as OPEC said it expects weaker demand for its crude and U.S. output climbed to the highest in records dating to January 1983.
Demand for oil from the Organization of Petroleum Exporting Countries will average 28.8 million barrels a day, about 100,000 barrels less than forecast last month, the Vienna-based organization said in a monthly report. U.S. output surged to 9.19 million barrels a day last week, the Energy Information Administration reported yesterday.
Crude slid almost 50 percent last year, the most since the 2008 financial crisis, as OPEC resisted calls to cut its output ceiling amid the U.S. shale boom, exacerbating a global surplus. WTI crude will decline to $32 by the end of this quarter, Bank of America said.
“Nothing fundamental has changed,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “It’s going to take months before you see U.S. production slowing down. Any rally will be sold into.”
WTI for February delivery fell 51 cents, or 1.1 percent, to $47.97 a barrel at 11:51 a.m. on the New York Mercantile Exchange after climbing to $51.27. The contract advanced 5.6 percent yesterday, the most since June 2012. The volume of all futures traded was more than twice the 100-day average for the time of day.
Brent for February settlement, which expires today, fell 12 cents to $48.57 a barrel on the London-based ICE Futures Europe exchange. The more active March futures slid 7 cents to $49.79. Brent traded 60 cents above WTI on the ICE.
“When the market extends itself too far, we’ll see some short-covering rally, and when the pressure evaporates, we’ll continue to see prices moving lower,” said Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut. “That’s what we are witnessing now.”
OPEC kept its output above quota for a seventh month in December, according to data compiled by Bloomberg. The group, which pumps about 40 percent of the world’s oil, decided to maintain its output target at 30 million barrels a day at a Nov. 27 meeting in Vienna.
OPEC boosted its 2015 estimate for U.S. oil production in the monthly report today. It said annual growth will be slower than previously estimated as lower prices lead to investment cuts and less drilling.
“When you see another record production from the U.S. last week despite a 12 percent cut in rig counts, it does not give much hope for OPEC that reductions will come from the U.S.,” Ole Hansen, head of commodity strategy at Saxo Bank A/S, said by e-mail.
Brent futures are in steep contango, where front-month prices are lower than oil for later delivery, and “this means stocks all over the world are building at a very fast rate,” said analysts including Francisco Blanch, head of commodities research at Bank of America, in a report today. The bank forecast Brent to reach $31 by the end of the quarter.
Brent traded below WTI this week for the first time since July 2013, indicating that Saudi Arabia’s strategy of curbing American shale output growth is working, according to Societe Generale SA. (GLE) The difference reflects that oil storage capacity is more readily available in the U.S. than elsewhere, according to Citigroup Inc.
U.S. crude production increased by 60,000 barrels a day in the week ended Jan. 9, the EIA reported yesterday. Stockpiles expanded by 5.39 million barrels to 387.8 million, more than 9 percent above the five-year average for this time of year, according to the Energy Department’s statistical arm.
U.S. oil rig count declined 61 in the week ended Jan. 9 to 1,421, the lowest level since February, according to Baker Hughes Inc. (BHI) The amount reached a record 1,609 in the week ended Oct. 10.
“The market is oversupplied,” said Michael Hiley, head of energy OTC at LPS Partners Inc. in New York. “U.S. production will continue to edge higher. The market is not acting like it’s done going down.”