Oil dropped to the lowest level in more than five years on growing evidence that OPEC won’t pare output to reduce a global supply surplus.
Brent slid as much as 4% while West Texas Intermediate fell 3.3%.
The United Arab Emirates has no plans to reduce output no matter how low prices drop, according to Yousef Al Otaiba, the nation’s ambassador to the US Representatives from Saudi Arabia, Kuwait and the UAE stressed a dozen times in the past six weeks that OPEC won’t curb output to halt the rout.
WTI’s discount to Brent shrank to its narrowest since October.
“The price war continues and there’s a great deal of excess supply,” Phil Flynn, senior market analyst at the Price Futures Group in Chicago, said by phone.
“The statements from the UAE ambassador show that they’re doubling down and taking no prisoners. This will be a long fought war and they have the Saudis behind them.”
Oil is trading near the lowest levels since April 2009 amid concern that a global supply surplus estimated by Qatar at 2 million barrels a day will persist this year.
The Organization of Petroleum Exporting Countries is battling a US shale boom by resisting production cuts, signaling it’s prepared to let futures fall to a level that slows the American output.
West Texas Intermediate for February delivery slipped $1.40, or 2.9%, to $47.39 a barrel at 11:30 a.m. on the New York Mercantile Exchange.
The volume of all futures traded was 34% above the 100-day average for the time of day.
The contract touched $46.83 on Jan. 7, the lowest intraday price since April 21, 2009. Futures are down 10% this week.
Brent for February settlement decreased $1.80, or 3.5%,, to $49.16 a barrel on the London-based ICE Futures Europe exchange.
It touched $48.90, the least since April 2009. Volume for all futures traded was 68% above the 100-day average.
The North Sea oil is down 13% this week. The European benchmark crude traded at a $1.77 premium to WTI.
“The spread has narrowed because of the more extreme weakening of Brent,” Mike Wittner, head of oil research at Societe Generale SA in New York, said.
“The OPEC decision to maintain production is having a greater impact on Brent. We’re expecting the spread to stay tight this year because of huge global stock builds.”
Futures initially rebounded from the session’s lows after government data showed that US employment rose more than forecast in December and the jobless rate declined to 5.6%, wrapping up the best year for the labor market since 1999 and adding to evidence the US is a standout in the global economy.
“The WTI discount is shrinking because the US economy is doing much better than what we see in most of the world, which should lead to stronger demand here,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $2.4 billion, said.
“The Saudi decision to protect market share will continue to put pressure on Brent.”
The UAE can live with current market conditions for “a lot longer than people expect,” Al Otaiba, the ambassador, said in Washington yesterday.
“This extra glut in the market is not coming from the OPEC members, so therefore why should the OPEC members have to cut their production?”
OPEC won’t reverse course even if crude prices fall as low as $20 a barrel or non-OPEC countries offer to help with production cuts, Saudi Arabian Oil Minister Ali Al-Naimi said in an interview with the Middle East Economic Survey on December 21.
The kingdom may even bolster output if non-OPEC nations do so, he said.
“The expectation that the Saudis and other Gulf producers will cut production in a matter of months is unfounded,” Sarah Emerson, managing principal of ESAI Energy Inc., a consulting company in Wakefield, Massachusetts, said by phone.
“The Gulf producers will probably maintain production through 2016, absent a disruption. The ball is now in the other producers’ court.”
OPEC’s 12 members agreed on November 27 to maintain their collective output quota at 30 million barrels a day.
The group produced 30.2 million barrels a day of crude last month, according to data compiled.
They’re next scheduled to meet on June 5.
US output expanded to 9.14 million barrels a day in the week ended December 12, according to the Energy Information Administration.
That’s the most in weekly data from the Energy Department’s statistical arm that started in January 1983.
US producers are bailing out of long-term contracts for drilling rigs as prices slide below $50 a barrel. Helmerich & Payne Inc. (HP), the biggest rig operator in the US, said it had received early termination notices for four contracts, while Pioneer Energy Services Corp said four rigs have been canceled early.
WTI may fall next week, according to a Bloomberg survey. Twenty-two of 43 traders and analysts, or 51%, said futures will decrease through January 16, while 11 respondents predicted a gain.
Gasoline futures fell 3.8 cents, or 2.8%, to $1.3029 a gallon, after touching $1.2936, the lowest since March 2009. Ultra low sulfur diesel slipped 3.27 cents, or 1.9%, to $1.6783.
Regular gasoline at US pumps fell to the lowest level since May 2009. The average retail price slipped 1.4 cents to $2.168 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.
Pump prices were around $2.05 a gallon when oil was last below $50 a barrel.
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