Oil prices sink to beneath $40 a barrel

Oil prices steadied on Tuesday but not before plumbing new lows last seen during the 2009 financial crisis, as an intensifying supply glut sparked fears the world will run out of storage for crude.

Brent and US crude futures sunk beneath $40 a barrel, hitting February 2009 levels and extending Monday’s 6 per cent rout, before rebounding slightly on what traders said was most likely short-covering.

Brent was down at below $40.50 a barrel, after setting a session low at $39.81.

US crude’s West Texas Intermediate (WTI) futures were up 20 cents at $37.85, after sliding to $36.64 earlier. Some forecasters now see the possibility of oil prices dropping as low as $20 a barrel.

“It’s most likely shorts taking profit and exiting their positions,” said Pete Donovan, broker at New York’s Liquidity Energy, referring to the rebound.

“Fundamentals remain bleak but the question is also how much more aggressive can sellers be when the downside becomes more limited?”

Price support

Oil’s sharpest sell-off since summer came after Friday’s meeting of the Organisation of the Petroleum Exporting Countries (OPEC) which all but abandoned price support for crude through production cutting the group once resorted to.

OPEC also failed for the first time in decades to agree to a production ceiling.

Instead, its core members, led by top crude exporter Saudi Arabia, appeared to be readying for new battles for share in a market with record stockpiles and consuming about 2 million barrels per day (bpd) above production.

General weakness

In an indication of market battle, Saudi Arabia was shipping more crude to Asia over the last two months of the year, trade sources said.

The oil price falls unsettled world markets, with mining and oil stocks down and general weakness elsewhere.

Commodity prices also slumped with iron ore prices at their lowest level in a decade.

The Dublin and London markets both fell by around 1.4 per cent and US stocks also fell. Banks such as Goldman Sachs have said oil could fall to $20, though opinion is divided among analysts.

But bullish traders such as Andy Hall were not ready to give up their bets on a faster-than-thought recovery.

“There is certainly still a chance of lower prices in the next month or so,” Mr Hall wrote in a December 1st letter to investors in his Astenbeck Capital Management hedge fund.

It is headed for its worst year after losing 26 per cent through November.

“But now is not the time to exit the market,” he added.

– (Reuters)