Oil prices hit fresh 5½-year lows

US crude and Brent futures dropped to fresh 5½-year lows today as worries about a surplus of global supplies amid weak demand continued to drag on oil markets.

OPEC’s decision in November to maintain output had earlier accelerated oil’s losses, while record-high Russian production and the highest Iraqi exports since 1980 added to the concerns about oversupply. The two oil benchmarks, Brent and West Texas Intermediate, have now lost more than half of their value from peaks hit in mid-2014.

US crude slid as low as US$51.40 a barrel today, its lowest since May 2009, and at 2.45am ET was at US$51.67 a barrel, still down US$1.02.

February Brent crude dropped as low as US$55.25 a barrel, also its lowest since May 2009, before edging back to US$55.48, down 94 cents.

“With the global oil market just passing peak runs and Libyan supply already at low levels, it’s hard to see much improvement in oil fundamentals near term,” Morgan Stanley analysts led by Adam Longson said in a note.

Lacklustre economic data from the United States on Friday fuelled worries about the state of the global economy and the strength of oil demand.

“Oil demand is unlikely to be robust this year when we look at the state of economies in China, Japan and Europe,” said Yusuke Seta, a commodity sales manager at Newedge Japan.

A weak euro may also have contributed to further oil losses as it reduces the purchasing power of euro holders for dollar-denominated oil.

“Theoretically, a weaker euro puts downward pressure on Brent, although quantitative easing in the euro zone could possibly put more liquidity in the region, which may subsequently flow into Brent,” Seta said.

Investors are also increasing bets on lower oil prices.

Open interest for US$40-US$50 strike puts have risen several fold since the start of December, while US$20-US$30 puts for June 2015 have traded, said Stephen Schork, editor of Pennsylvania-based The Schork Report.

Conflicts in Libya have reduced the OPEC producer’s crude output to around 380,000 barrels a day, state-run National Oil Corp (NOC) has said.

Fighting was reported near the country’s biggest oil export port Es Sider in the east even as a week-long fire at the port’s storage tanks was extinguished on Friday. — Reuters

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