Global Glut Keeps Pressure on Oil Prices
Crude Producers Keep the Spigots Open Amid Lax Demand
Traders are becoming increasingly convinced that the world will remain awash in oil.
Crude prices have tumbled more than 20% since mid-June. The global benchmark, Brent oil, dropped to a near-four-year low of $88.89 a barrel on Monday, and the U.S. benchmark dropped to $85.74, a 22-month low.
Instead of cutting back on output, to help reduce supplies and increase prices, oil producers—from U.S. corporations to oil-rich nations—are keeping the spigots open. And there is little sign that global demand will rise quickly enough to help erase the glut.
Until recently, many investors expected that members of the Organization of the Petroleum Exporting Countries would collectively cut production. Such a move would quickly bring supply and demand back in line and likely spur a rebound in prices. But a rift within OPEC is making a reduction in oil exports look less likely at the group’s meeting next month. That sets up the oil market for a slow grind lower, investors and analysts say.
And within the U.S., companies also can remain profitable with prices at current levels.
Traders and analysts say that means oil prices could drop below $80 a barrel before producers in the U.S. and elsewhere feel enough pressure to ease back on output.
At current prices, “this is not going to lead to a decline in U.S. production,” said Ed Morse, global head of commodities research at Citigroup Inc. Many OPEC members need higher oil prices to balance their budgets than U.S. producers need to keep drilling, he said. “It would be a tough struggle to say who is going to get hurt more, the U.S. oil producer or the OPEC oil producer, at a significantly lower price than today.”
Full story: http://online.wsj.com/articles/opec-competition-pushes-crude-lower-1413194740