Singapore: Crude oil headed for the second biggest weekly decline in more than five years as a deepening global recession saps demand, countering efforts by the Organization of the Petroleum Exporting Countries (Opec) to boost prices.
Oil has dropped 33% this month even as Opec agreed to its largest production cut in more than a decade because traders speculated that falling demand would outweigh the reduction. Global oil use may decline the most since 1983, Deutsche Bank AG analyst Adam Sieminski said on Thursday.
“Everyone is revising back demand forecasts and Opec is desperately cutting in order to catch up to where the market is,” said Gerard Burg, energy and minerals economist at National Australia Bank Ltd in Melbourne. “There is a feeling that Opec isn’t in control.”
Crude oil for January delivery was at $36.40 a barrel, up 18 cents, at 1.15pm Singapore time on the New York Mercantile Exchange (Nymex). Oil has fallen 21% this week. The January contract expires on Friday. The more-active February contract rose as much as 98 cents, or 2.4%, to $42.65 a barrel. It was at $42.62 a barrel at 1.22pm Singapore time.
Prices have tumbled 75% from a record $147.27 a barrel on 11 July and declined 62% this year, snapping six years of consecutive gains. Brent crude oil for February settlement was at $43.92 a barrel, up 56 cents, on London’s ICE Futures Europe exchange. The contract on Thursday declined $2.17, or 4.8%, to settle at $43.36 a barrel.
Opec, which pumps 40% of the world’s oil, agreed on 17 December to cut output by 2.46 million barrels a day starting 1 January. It has called on other exporters to help it bolster prices. Non-Opec members Russia and Azerbaijan signaled on 17 December that they may be willing to trim supplies to help the group.
World oil consumption next year will drop by 0.2% to 85.68 million barrels a day, Opec said in a 15 December report. The US energy department (DOE) said on 9 December that global demand will decline 0.5% to 85.3 million barrels a day. “We’re still in a state where the market is searching for a bottom,” said National Australia’s Burg.
February futures cost $5.45 a barrel more than January oil on Thursday, based on Nymex settlement prices. It’s the biggest premium between the two most active contract months in Bloomberg data going back to 1986.
The spread allows oil traders who can line up credit and storage space to lock in profits by buying and holding crude oil to sell a month from now.
Oil for delivery in January 2010 is 53% more than for delivery in January 2009, increasing the opportunity for traders to profit. This price structure, in which the subsequent month’s price is higher than the one before it, is known as contango.
Contango trading encourages companies to increase stockpiles. US crude-oil supplies rose in 11 of the past 12 weeks, according to the DOE. Inventories at Cushing, Oklahoma, where oil that’s traded on Nymex is stored, climbed 21% to 27.5 million barrels last week, the highest since May 2007, the government said on 17 December.
Oil companies have booked 25 supertankers to store crude, enough to supply France for almost a month. The vessels, equal to about 5% of the global fleet, can carry as much as 50 million barrels.
“In the short-term the price can be pretty much anything because of all the crude in storage on the water,” said Mitsubishi’s Nunan.