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Oil Price In Freefall As Supplies Surge

Published 05/01/2015, 13:00
Updated 09/07/2023, 11:32
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Crude oil has extended its dramatic December slump and is currently trading at the lowest level since 2009. The continued selling has been driven by news of rising supply from Russia and Iraq which is hitting the market at a time when refinery demand is heading for its seasonal slowdown.

Supply disruptions from Libya over the past couple of weeks have failed to lift the price, and this is a clear indication of how the market focus has changed since last summer when such news would have given the price a respectable boost.

Iraq's December export of crude oil rose to 2.94 million barrels per day — the highest since 1980 — and they plan to increase that that number to 3.3 million b/day in January. In Russia, oil production rose to a post-Soviet era high of 10.67 million b/day last month and this news, combined with the ongoing dollar rally, has put the prices of both WTI and Brent crude oil under additional selling pressure.

As demand fails to keep up with supply we are seeing the structure of the oil curves weaken as they move deeper into contango. The discount between the first and second month futures on Brent crude has risen to $0.83/b while on WTI crude the discount is currently at $0.44/bl.

As demand fails to keep up, a bigger discount has to be offered in the spot market to attract buyers; as long this situation persists, the upside potential seems limited.

Key support on WTI crude oil is still some 11% away at $46/b, which is the trendline going back all the way to the 1998 low. In Brent crude, the similar level is $52.40/b or some 5.5% below current levels.

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