Oil trades below $48 as U.S. crude supplies seen worsening glut

1/22/2015

BEN SHARPLES

MELBOURNE (Bloomberg) -- Oil traded below $48/bbl before government data that’s forecast to show U.S. crude inventories expanded for a second week.

Futures dropped as much as 1.2% in New York. Stockpiles in the U.S., the world’s biggest oil consumer, probably gained by 2.7 MMbbl last week, a Bloomberg News survey shows before government data on Jan. 22.

OPEC will blink first in its battle with U.S. shale drillers and may have to cut its production target this year, according to a quarterly poll of Bloomberg subscribers.

Oil slumped almost 50% last year as the U.S. pumped crude at the fastest rate in more than three decades and the Organization of Petroleum Exporting Countries resisted calls to reduce output. Prices will rebound rather than extend declines to as low as $20/bbl, Secretary-General Abdalla El-Badri said in Davos, Switzerland.

“The consensus view is that there’s about a 2 MMbopd supply overhang at the moment,” said Ric Spooner, a chief strategist at CMC Markets in Sydney. “When we start seeing cuts, we’ll see an immediate response to forward prices, assuming it’s a significant reduction.”

WTI for March delivery decreased as much as 55 cents to $47.23/bbl in electronic trading on the New York Mercantile Exchange and was at $47.34 at 4:05 p.m. Singapore time. The contract rose $1.31 to $47.78 on Jan. 21. The volume of all futures traded was about 37% below the 100-day average.

U.S. Supplies

Brent for March settlement was 31 cents lower at $48.72/bbl on the London-based ICE Futures Europe exchange. It climbed $1.04 to $49.03 on Jan. 21. The European benchmark crude traded at a premium of $1.45 to WTI.

U.S. crude stockpiles probably increased to 390.5 MMbbl in the week ended Jan. 16, according to the median estimate in the Bloomberg survey of 10 analysts before the Energy Information Administration’s report.

Supplies in the prior period were more than 9% above the five-year average for this time of year.

The nation produced 9.19 MMbopd through Jan. 9, the most in weekly records dating back to January 1983, said the EIA, the Energy Department’s statistical arm. The U.S. oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked shale formations from Texas to North Dakota.

Venezuela, Iraq

Fracking is “destructive” and the U.S. is flooding the market, according to Venezuela’s President Nicolas Maduro. The OPEC member’s oil price reached $38/bbl, he said during a national address broadcast on radio and television.

U.S. shale drillers won’t scale back production quickly enough for OPEC to avoid cutting output this year, according to 49% of respondents in the quarterly Bloomberg survey. 34% predicted shale drillers will reduce supply in time while 17% said they weren’t sure.

The poll of 481 investors, analysts and traders who are Bloomberg subscribers was conducted Jan. 14 to Jan. 15 and has a margin of error of plus or minus 4.5 percentage points.

Iraq, the group’s second-largest producer, needs to boost output and exports to compensate for lower prices, said Deputy Prime Minister Rowsch Nuri Shaways. The country has lost about 50% of its revenue because of the price slide, he said in Davos on Wednesday. It’s pumping at 4 MMbopd, Oil Minister Adel Abdul Mahdi said on Jan. 19.

$20 Oil

Producers outside OPEC should be the first to reduce their output amid a surplus that’s pushed crude below $50/bbl, El-Badri said in an interview with Bloomberg Television at the World Economic Forum.

“The price will not go to $20 or $25, I think the price will stay at where we are now,” he said. “We have seen this before -- prices coming down very fast and go up very slow. But prices will rebound.”

OPEC’s 12 members, which supply about 40% of the world’s oil, maintained their collective quota at 30 MMbopd at a Nov. 27 meeting in Vienna. Output averaged 30.2 MMbopd in December, data compiled by Bloomberg show.

Crude’s rapid drop and volatility in the market may deter investment in all types of energy needed to meet future demand, Maria Van Der Hoeven, the executive director of the International Energy Agency, said in an interview in Abu Dhabi.

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