Oil plunged below $40 a barrel in New York for the first time in more than six years, extending the longest decline since 1986 on concern slower demand growth will prolong a global glut.
Prices have tumbled almost 35% since this year’s highest close in June as producers pump away even after an oversupply pushed prices into a bear market. West Texas Intermediate may drop to $32 on the persisting surplus, Citigroup Inc. said Aug. 19. Meanwhile, concern that China’s economy will slow increases expectation that demand will wane.
“It’s clear that the major producers, the Saudis, Russians, the U.S. and others, are battling for market share,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone.
An unexpected crude inventory gain in the U.S. last week followed signs that OPEC members are planning to boost production. A manufacturing gauge in China, the world’s second-largest oil consumer, sank to the lowest level since the financial crisis.
WTI for October delivery dropped 87 cents, or 2.1%, to settle at $40.45 a barrel on the New York Mercantile Exchange, the lowest close since March 2009. It touched $39.86 earlier. The volume of all futures traded was 13% above the 100-day average.
Brent for October settlement fell $1.16 to $45.46 a barrel on the London-based ICE Futures Europe exchange, also the lowest close since March 2009.
Oil balances point to further oversupply throughout 2015, “begging the question how low can oil go?” Citigroup analysts led by Seth Kleinman said in the note.
Looking ahead, WTI for delivery in December 2016 traded $6.06 above December 2015, the narrowest closing premium since Aug. 17.
“It could be the result of producers hedging, pressuring the back end of the curve more than front,” said Michael Hiley, head of over-the-counter energy trading at New York-based LPS Partners Inc., a futures brokerage.
U.S. crude inventories rose by 2.62 million barrels to 456.2 million in the week ended Aug. 14, almost 100 million above the five-year average. An 820,000 barrel stockpile decline was projected by analysts surveyed by Bloomberg.
America’s output climbed 8.8% from a year earlier to 9.52 million barrels a day in July, the highest for the month since at least 1920, the industry-funded American Petroleum Institute said Thursday.
“Eventually, supply and demand will come into balance, but it will take a while,” Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said by phone.
The Organization of Petroleum Exporting Countries has pumped above its 30 million-barrel-a-day quota for more than a year, according to data compiled by Bloomberg.
Saudi Arabia told OPEC its June production was a record, exceeding the previous high set in 1980.
Angola plans to ship 1.83 million barrels a day in October, the most since November 2011, according to a preliminary loading program obtained by Bloomberg.