January 20, 2016 – US crude hit new 12-year lows below $28 a barrel in Asia earlier today after the International Energy Agency warned that the oil market could “drown in oversupply”.
West Texas Intermediate (WTI), the US benchmark, struck a low of US$27.92 a barrel at one point before recovering slightly. It was trading at US$27.96, down 50 cents, or 1.76 per cent.
The last time WTI closed below US$28 was in September 2003.
“Oil prices are at a level where OPEC countries are all struggling. They are selling oil for cashflow not for profit,” said Jonathan Barratt, chief investment financial officer at Sydney’s Ayers Alliance. “US producers are holding out, but I think they’re bleeding as well,” he said.
He added: “Looking at current prices, oil producers will engineer something to push prices higher.”
US commercial crude oil and gasoline stocks were forecast to have risen by 3 million to 485.6 million barrels last week, a preliminary Reuters survey taken ahead of weekly inventory data, showed yesterday.
Stocks data from industry group the American Petroleum Institute (API) is due out later on Wednesday, while official figures from the U.S. Department of Energy’s Energy Information Administration (EIA) will be released on Thursday, a day later due to a public holiday.
Ample storage space for crude around the world, including 230 million barrels of new storage to be completed this year, will help prevent further sharp price falls but will weigh against significant price rises, according to analysts and industry watchers.
Global financial markets seem to be overreacting to falling oil prices and the risk of a sharp downturn in China’s economy, Maurice Obstfeld, the International Monetary Fund’s chief economist said on Tuesday.
“The oil price puts stresses on oil exporters … but there is a silver lining for consumers worldwide, so it’s not an unmitigated negative.”