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Oil extends drop below $48

brent_crude_oil_050Oil extended losses below $48 a barrel amid speculation that U.S. inventories will expand, deepening a global supply glut that’s driven prices to a five-year low.

Futures declined for a fourth day. Stockpiles in the world’s biggest oil-consuming country probably rose by 700,000 barrels last week, a Bloomberg News survey showed before a government report tomorrow.

Oil slumped almost 50 percent in 2014, the most since the 2008 financial crisis, after the Organization of Petroleum Exporting Countries resisted calls to cut output as it competes with U.S. producers. The market faces “more problems” this year, according to Morgan Stanley, with surging output in Russia and Iraq contributing to a surplus that Qatar estimates at 2 million barrels a day.

“The path of least resistance is lower,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion. “There is no bullish news. OPEC refuses to cut production and there is no evidence of falling production outside of OPEC.”

West Texas Intermediate for February delivery dropped $2.11, or 4.2 percent, to $47.93 a barrel on the New York Mercantile Exchange, the lowest settlement since April 2009. The volume of all futures traded was about 55 percent above the 100-day average for the time of day.

Brent for February settlement decreased $2.01, or 3.8 percent, to $51.10 on the London-based ICE Futures Europe exchange, also the lowest since April 2009. The European benchmark crude traded at a premium of $3.17 to WTI.

“The market is obsessed with the supply side,” Hans van Cleef, energy economist at ABN Amro Bank NV in Amsterdam, said by phone. “Prices have dropped too fast and too far, but with the market this negative it’s hard to see a trigger which could turn the sentiment. If U.S. inventories are higher than expected, we could see Brent below $50 this week.”

U.S. crude inventories probably increased to 386.2 million barrels in the week ended Jan. 2, according to the Bloomberg survey before the Energy Information Administration releases its weekly report tomorrow. Inventories of crude and gasoline were at their highest seasonal level since EIA weekly data started.

“Supplies may continue to rise here in the U.S. The supply glut is just weighing on everything,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago.

Saudi Arabia, the biggest OPEC producer, will keep a “solid will” and maintain the nation’s stability even with falling crude prices, King Abdullah said today in a speech read by his crown prince.

U.S. output climbed to 9.14 million barrels a day through Dec. 12, the highest in weekly estimates that started in January 1983, according to the EIA. OPEC’s 12 members, which supply about 40 percent of the world’s oil, pumped 30.24 million a day in December, exceeding their collective target of 30 million for a seventh straight month, a Bloomberg separate survey of companies, producers and analysts show

Production may expand from fields in West Africa, Latin America, the U.S. and Canada in addition to increased supplies from Russia and Iraq, Morgan Stanley said yesterday in a report. Iran may boost overseas exports by about 500,000 barrels a day if international sanctions are lifted, the bank said.

Hedge funds reduced bets on rising oil prices for a second week, according to the latest data from the U.S. Commodity Futures Trading Commission.

Speculators pared their net-long position in WTI by 3.6 percent in the week ended Dec. 30, the data show. Short wagers jumped 12 percent, the first gain in six weeks.

“We need to see the speculators leave the market before we can find a bottom,” Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $120 billion of assets, said by phone. “There also has to be a reduction in output here. The fall in rig counts is a good sign but not enough. We need to see actual production slow.”-Bloomberg