New York-traded West Texas Intermediate crude fell below $70 a barrel after the OPEC announcement on Thursday, dashing hopes of an output cut that could boost prices, and hit its lowest since May 2010. Prices have since modestly come off their lows.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in January CLF5, -8.10% was off $4.55, or 6.3%, to trade at $69.18 a barrel on Friday. But the drop primarily came on Thursday, when the U.S. was focused on Thanksgiving, and the U.S. holiday meant there was no settlement price, making the drop based on Wednesday’s close.
January Brent crude LCOF5, -1.38% on London’s ICE Futures exchange rose 49 cents, or 0.7%, from Thursday’s settlement to $73.04 a barrel after trading at its lowest since August 2010. Brent is the global oil benchmark.
Oil prices have lost around 35% of their value since their peak in June, and OPEC’s decision to maintain its current production ceiling of 30 million barrels a day does little to remove the glut that has kept oil prices low.
On Friday, analysts warned of an oil surplus around 1 million barrels a day for next year, which would continue to keep prices low.
“The oil price is likely to continue falling until rising demand and declining non-OPEC supply get rid of the oversupply. The key role in this looks set to be played by US shale oil producers who will probably face more and more problems at prices below $70 per barrel,” analysts at Commerzbank said in a note Friday.
Also read: 10 U.S. shale stocks that are getting crushed the most
Prices could hit bottom “fairly rapidly,” however, if markets start to see signs of adjusting, “notably in falling US drilling activity or rising demand estimates,” analysts at HSBC said in a note Friday.Demand is also a relatively brighter spot. The last three oil price shocks that hit the world economy over a span of 16 years saw sharp drops in global oil demand, but this time oil demand, although slower, is still growing. “The question now is how the supply adjustment process will unfold, and under what timeframe,” analyst Leo P. Mariani at RBC Capital Markets said in a report.
Low oil prices are good news for consumers, who are seeing low retail-gasoline prices, and for countries that are big oil importers, such as China, but the HSBC analysts cautioned against “getting too carried away” with that aspect: falling oil prices are “an ongoing deficiency in global demand” and its “disinflationary pressures” would work on wages, too.
The slide in oil also has sparked heavy selling of energy stocks.
Elsewhere in energy futures trading, Nymex gasoline for December RBZ4, -6.88% delivery fell 11 cents, or 5.6%, to $1.90 a gallon. December heating oil HOZ4, -6.68% receded 9 cents, or 4.1%, to trade at $2.23 a gallon on Nymex.
