Oil plunges as global glut persists

The price of oil plunged to its lowest in three months amid renewed concerns that efforts to bring global supply into balance with demand are failing.

Brent oil shed 5 per cent to settle at $US53.11 a barrel on London’s ICE Futures Europe exchange. US oil slid 5.4 per cent, the biggest one-day drop in more than a year, to $US50.28 a barrel on the New York Mercantile Exchange. It was the lowest closing price for both futures contracts since December 7.

The slide hit the shares of local energy companies on Thursday, with Santos falling 3.3 per cent and Woodside closing 1.1 per cent lower.

“The crude market is losing patience,” Mike Wittner, head of commodities research at Societe Generale in New York, said.

As a result, oil is edging closer to the level it traded at before the Organisation of the Petroleum Exporting Countries agreed in November to cut output for six months, and it is unclear whether that accord will be extended. No assurances on OPEC quotas

Saudi Arabia Oil Minister Khalid Al-Falih this week said the world can’t rely on OPEC alone to balance the market and there was no assurance that OPEC would extend the current quotas beyond the six-month agreement.

He also said non-OPEC producing nations wouldn’t be allowed to take advantage of OPEC’s market retreat. Saudi Arabia has cut its output faster than it agreed but Mr Falih hinted there was a limit.

While compliance among OPEC members with their mostly lower monthly quotas has been better than expected, the lift in oil prices as well as tight cost controls among US producers has led to a steady increase in US oil production and stockpiles.

US crude stockpiles rose by 8.209 million barrels to 528,393 million barrels in the latest tally, a record high, according to the US Energy Information Administration.

Oil services company Baker Hughes earlier this week said the average US rig count for February was 744, 8.9 per cent higher than counted in January, and up 40 per cent from February 2016.

“Whenever there is opportunity, you’ll get somebody down here in Texas, Colorado, Pennsylvania … and they’ll go back into the marketplace,” American Petroleum Institute president Jack Gerard said at an oil industry conference in Houston. “I believe our guys here in the US are well positioned … to take advantage of potential upside.” Global demand concerns

Mr Gerard said there had been a lot of talk about global demand rising at the conference, in particular in emerging markets over the next three to five years, and therefore there was a need to invest more to be ready for it.

What Mr Gerard called “thoughtful optimism” in the industry about the oil market isn’t being interpreted as such by traders and investors.

“Good news had certainly been out there in terms of production cuts,” Solaris Group chief investment officer Tim Ghriskey said.

“Now you see, especially on the US side, inventory builds and shale producers making some good money at these levels so production comes back on line.”

In its monthly report, the EIA is forecasting that Brent will average $US55 a barrel in 2017, rising to $US57 a barrel in 2018. US oil will trail Brent by about $US1 a barrel.

As for US production, the EIA is bullish. US crude oil production averaged an estimated 8.9 million barrels per day in 2016 and it is forecast to average 9.2 million barrels a day this year and 9.7 million next year.

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