Oil
prices drop towards 11-year lows on worsening glut
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[December 14, 2015]
By Dmitry Zhdannikov and Amanda
Cooper
LONDON (Reuters) - Oil prices fell for a
seventh straight session on Monday, coming close to 11-year lows, on
growing fears that the global oil glut would worsen in the months to
come in a pricing war between leading OPEC and non-OPEC producers.
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Brent crude fell by 3.4 percent to below $36.70 a barrel for the
first time since December 2008 and U.S. West Texas Intermediate (WTI)
<CLc1> sank 2.5 percent below $34.70 a barrel.
Brent traded less than 50 cents above the lows last seen during the
2008 financial crisis of $36.20 a barrel. If Brent falls below that
level, that will be its lowest since mid-2004, when talk of a
commodity super-cycle was only beginning.
WTI's financial crisis low was $32.40 in December 2008.
"Oil is coming under pressure as the lack of OPEC cuts mean
incessant oversupply continues," said Amrita Sen from Energy Aspects
think tank.
Both benchmarks have fallen every day since the Organization of the
Petroleum Exporting Countries on Dec. 4 abandoned its output
ceiling. In the past six sessions, they have shed more than 13
percent each.
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OPEC has been pumping near record levels since last year in an
attempt to drive higher-cost producers such as U.S. shale firms out
of the market.
New supply is likely to hit the market early next year as OPEC
member Iran ramps up production once sanctions are lifted as
expected following the July agreement on its disputed nuclear
programme.
"All new production will be earmarked for exports," BMI Research
said in a note. "In addition to volumes released from storage, Iran
will be able to increase crude oil and condensates exports by a
maximum of 700,000 b/d by end-2016," it said.
Iran's crude oil exports are set to hit a six-month high in December
as buyers ramp up purchases in expectation that sanctions against
the country will be lifted early next year, according to an industry
source with knowledge of tanker loading schedules.
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Iranian news agency Shana quoted on Monday manager director of
Iran's Central Oil Fields Company, Salbali Karimi, as saying Iran's
cost of production stood $1-$1.5 per barrel, in a clear indication
it would ramp up output in any price scenario.
Gulf producers and Russia have previously said they would not cut
output even if prices fell to $20 per barrel.
On Friday, the International Energy Agency (IEA) that the global
supply glut was likely to deepen next year and put more pressure on
prices. But it said it didn't believe the world would run out of
storage capacity [EIA/]
OPEC supply is likely to increase by 1 million bpd next year, Morgan
Stanley analysts said in a research note Monday.
"Almost the entirety of added supplies in 2016 will come from Iran,
Iraq and Saudi," it said.
(Reporting by Amanda Cooper and Dmitry Zhdannikov; Editing by
William Hardy)
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