Crude Oil Futures Drop as Weak Outlook Prevails and Demand Slows

That’s a level not seen since the global financial crisis.

On Wednesday, the oil market was highly unstable on the eve of the New Year and in the final week of 2015 as prices remained close to multi-year lows amid indications that a supply glut will continue into 2016, AFP reported. Additionally, US crude output is poised to grow for a seventh straight year.

The U.S. shale industry, meanwhile, surprised the world again with its ability to survive rock-bottom crude prices, churning out more supply than thought, even as the sell-off in oil slashed by two-thirds the number of drilling rigs in the country from a year ago. Russian Federation ended 2015 with weekly oil production setting a post-Soviet record, according to Energy Ministry data.

OPEC hopes keeping the oil market in surplus will help it maintain market share as lower prices drive higher-cost producers such as US shale oil players out.

With the demise of any Opec control, we’re certainly in a freer market for oil prices now, so could the stuff just be settling towards its free market pricing?

Brent for February settlement was 20 cents higher at $36.66/bbl on the London-based ICE Futures Europe exchange.

The Dow Jones industrial average fell 0.66 per cent to 17,603.87, the S&P 500 lost 0.72 per cent at 2,063.36 and the Nasdaq Composite dropped 0.8 per cent to 5,065.85. The European benchmark crude, which has averaged a $4.62 premium to WTI this year, was at a discount of 5 cents to NY futures.

We believe the major events that can determine the black gold’s fate are: Saudi Arabia-led OPEC’s production growth in an already oversupplied market, possible flood of Iranian oil, lift of the four-decade long USA crude export ban and the weakness in Chinese economy.

The storm is severe enough to lend support to Brent in a market that desperately needs a catalyst to stabilize prices, Kilduff told CNBC.

US crude stockpiles rose by 2.63 MMbbl through December 25 and production increased for a third week, the EIA said in a report Wednesday. The hub has a working capacity of 73 MMbbl, according to the EIA. Stores of crude usually decline in the other seasons when refineries boost the amount of oil they consume. The latest data show that US production fell 3.6% from a 44-year peak of 9.7 million barrels a day in April to 9.3 million barrels a day in October. Any optimism in global recovery and investment returns would prompt interests in risk assets including oil, as evident in this graph of WTI prices versus net futures holdings (‘USD billion) recorded by U.S. Commodity Futures Trading Commission.

Analysts estimate global crude production exceeds demand by anywhere between half a million and 2 million barrels every day.

Ahead of the official data from the US Department of Energy’s statistical arm, preliminary data from the American Petroleum Institute suggested that inventory levels increased in the country by 2.9 million barrels during the week.