‘World sinking in ocean of oil’ as price slides back below $30

A worker stands next to a tower for maintenance of an oil well on oil fields operated by a subsidiary of the KazMunayGas Exploration Production in Kyzylorda region, southern Kazakhstan. Reuters

Oil extended its decline back below $30 a barrel before weekly US government data forecast to show crude stockpiles expanded for a third week, exacerbating a global glut.

Futures decreased as much as 2.8 per cent in New York after dropping 5.8 per cent Monday. Inventories probably rose by 4 million barrels last week, a Bloomberg survey showed before an Energy Information Administration report Wednesday. Saudi Arabia, the world’s biggest crude exporter, said low prices won’t reduce its spending on energy projects while the head of Opec called on producers outside the group to assist in reducing the worldwide oversupply.

Oil is down about 20 per cent this year as volatility in global markets adds to concern over brimming US stockpiles, steady production from Saudi Arabia and Russia and the outlook for increasing Iranian shipments after the end of sanctions. Bets West Texas Intermediate crude will retreat below $25 a barrel have reached a record high as inventories continue to expand.

“We are just sinking in an ocean of oil,” Komal Sri-Kumar, the Santa Monica, California-based founder and president of Sri- Kumar Global Strategies, said in a Bloomberg Television interview. “There’s no indication Saudi Arabia or Russia is going to cut output.”

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WTI for March delivery lost as much as 84 cents to $29.50 a barrel on the New York Mercantile Exchange and was at $29.64 at 12.44pm Hong Kong time. The contract dropped $1.85 to $30.34 on Monday after the biggest two-day rally in more than seven years. Total volume traded was about 36 per cent above the 100-day average. Prices slid 30 per cent last year.

Brent for March settlement fell as much as 70 cents, or 2.3 per cent, to $29.80 a barrel on the London-based ICE Futures Europe exchange. The contract declined $1.68 to $30.50 on Monday. The European benchmark crude was at a premium of 26 cents to WTI.

US crude stockpiles increased by 3.98 million barrels to 486.5 million through January 15, keeping inventories more than 120 million barrels above the five-year seasonal average, according to data from the EIA. Supplies at Cushing, Oklahoma, the delivery point for WTI and the biggest US oil-storage hub, climbed to a record 64.2 million barrels.

Saudi Arabian Oil Company is maintaining investment in oil and natural gas projects and has formulated a new strategy in response to cheaper crude as it studies options to sell shares in its parent company and downstream refining and chemical operations, chairman Khalid Al Falih said at a conference in Riyadh. The state-run producer, known as Saudi Aramco, can sustain low oil prices for "a long, long time," he told reporters.

“It is vital the market addresses the issue of the stock overhang,” Opec secretary-general Abdalla El-Badri said on Monday at a conference in London. “It should be viewed as something Opec and non-Opec tackle together.”

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