Oil falls below $45

Oil extended its decline below $45 a barrel in New York as a further pullback in US drilling failed to temper expectations that the global oversupply will persist for most of next year.

West Texas Intermediate futures slipped 0.5 per cent after declining 2.8 per cent on 11 September when Goldman Sachs said the surprising endurance of the surplus could push prices down to $20 a barrel. The discount on front-month Brent futures versus later deliveries, an indicator of oversupply, was near the widest in three months. The number of rigs in use slid to the lowest level in almost two months, Baker Hughes Inc. said on 11 September.

Oil is down more than 25 per cent from its closing peak in June on speculation the global oversupply will be prolonged. The International Energy Agency predicts crude stockpiles won’t diminish until the second half of next year, and said even that forecast could be derailed if Iran can boost exports after the removal of sanctions.

“You need to line your ducks in a row in terms of US supply and rig count,” Harry Tchilinguirian, head of commodities strategy at BNP Paribas in London, said by e-mail. “Rig count and US supply have fallen for two weeks, and that’s all very positive, but you need to see this trend be confirmed before the market buys into the re-balancing argument.”

West Texas Intermediate for October delivery fell 22 cents to $44.41 a barrel on the New York Mercantile Exchange at 9:49 a.m. London time. The contract slid 3.1 per cent last week. The volume of all futures traded was about 20 per cent below the 100- day average. Prices have decreased 17 per cent this year.

Brent for October settlement, which expires Tuesday, fell 60 cents to $47.54 a barrel on the London-based ICE Futures Europe exchange. It lost 75 cents, or 1.5 per cent, to $48.14 on 10 September. The more-active November future slid 60 cents to $48.44. The discount on the front-month widened to 98 cents, having reached $1 a barrel on 10 September, the most since 15 June.

While $20 a barrel oil is not Goldman’s base-case scenario, a failure to reduce production fast enough may require prices near that level to clear the oversupply, the bank said in a report e-mailed on 11 September while trimming its Brent and WTI crude forecasts through 2016. US shale is the likely near-term source of output cuts, Goldman said.

Drillers in the US idled rigs for a second week, reducing the number of active machines by 10 to 652, Baker Hughes said Friday. The nation’s output declined for a fifth week through 4 September to average 9.14 million barrels a day, the Energy Information Administration said on 10 September.

The Organization of Petroleum Exporting Countries has pumped above its quota the past 15 months, fueling the global surplus. Iraq, the second-biggest member of the group, produced 3.76 million barrels of oil a day in August, compared with 3.7 million a day in July, according to an e-mailed statement from the state oil marketing company known as SOMO.-Bloomberg