LONDON — Oil is hovering below $US45 and on track for its worst performance for the first-half of a year since 1997.
Oil prices dropped in late trade on Wednesday and have failed to recover, amid continued concerns about oversupply. It entered bear market territory earlier in the week and price pessimism appears to be setting in. Traders are increasingly sceptical that OPEC will be able to control prices through supply caps in the way it once could.
Michael Hewson, chief market analyst at CMC Markets, says in an email: “The declines seen in the past few weeks really shouldn’t have been too much of a surprise to OPEC given the capacity of US shale producers to vacate the space left open for them.
“That, and a significant increase in output from Libya and Nigeria, both of whom are exempt from the quota system, and it is clear that OPEC underestimated their own importance, when it came to global oil output. The decline in prices hasn’t been helped by concerns that demand might be slowing in Asia, meaning the prospect that inventory levels are likely to remain elevated for longer.”
US West Texas Intermediate is hovering close to 12-month lows, down 0.02% to $US42.52 at 7.10 a.m. BST (2.10 a.m. ET):
Brent oil, meanwhile, is below $US45 a barrel for the first time this year. Brent is down 0.09% to $US44.74 at 7.15 a.m. BST (2.15 a.m. ET):
Oil prices have now dropped by more than 20% since the start of the year and, with eight days left to go until the first half of 2017 ends, the Telegraph reports that oil is on track for its worth first-half performance since 1997.
CMC Markets’ Hewson warns that price pressure could continue, saying: “A new unknown is whether the new Saudi leadership will alter course on its current oil policy, given that it is they who are making the lion’s share of the cuts in output.”
The Saudi king this week shook up the kingdom’s line of succession, putting his 31-year-old son first in line to the throne.
Hewson adds: “Another question now is what US shale producer’s pain threshold is as oil prices close in on the $US40 level, and levels last seen in August last year.”
OPEC began pumping out oil in 2014 as a tactic to try and put the US shale industry out of business by depressing prices to unsustainable levels. It had a dramatic effect, reducing the number of US oil rigs from just over 1,600 to around 500.
Get the latest Oil WTI price here.