Crude oil prices fell to the lowest levels since 2012 Thursday, as concerns about both oversupply and a weak global economy weighed on traders.
U.S. benchmark West Texas Intermediate crude fell $1.54 to $85.77 a barrel in Thursday trading on the New York Mercantile Exchange. Brent crude, the international benchmark, fell $1.62 in London trading to to $89.76, near its lowest levels since 2012.
Both crudes have slid about 20 percent since this summer, first as traders feared that rising production would flood the market and then that tepid global growth would weaken demand for crude oil.
Growth for oil demand – which is tied closely to economic growth – has slipped recently as worries about the broader global economy have outweighed better news from the United States.
In early October, the International Monetary Fund revised downward its global growth projection for 2014 by 0.4 percent from its April figures. The Fund is now predicting 3.3 percent growth due to weaker-than-expected global activity in the first half of 2014. News that German exports slumped by 5.8 percent in August and reports that the continent’s largest economy is flirting with a recession stoked fears that a European recovery could be sputtering.
More solid economic growth and continued signs of an improving labor market in the U.S. have so far not been able to make up for slackening elsewhere. Analyst firm IHS Inc. recently revised its annual global crude demand growth downward from 1.2 million barrels per day to 900,000 barrels per day.
While demand has been weakening, the markets have also been struggling to find a place for new oil flowing from revived production in Libya as well as U.S. shale.
U.S. shale production has been increasing at a rate of about 1 million barrels per day for the past three years, but until recently that has been offset by Middle Eastern disruptions, according to Sandy Fielden, RBN Energy’s director of energy analytics.
As Libyan production has come back online – rising from 200,000 barrels per day in the second quarter to 900,000 barrels per day recently – oil prices have fallen.
In the U.S., refineries have run at higher rates than normal and served as somewhat of a sink for extra supply. Total capacity used has been higher in 2014 than 2013 for each month except for one, according to the U.S. Energy Information Administration.
As a result, the differential between the U.S. benchmark of the West Texas Intermediate Blend and the international Brent price has recently narrowed as U.S. prices remained more stable, Fielden said in his report.
But even with the cheap feedstock spurring refiners along, U.S. oil continues to flow ever faster. On Wednesday, the U.S. Energy Information Administration reported that U.S. crude supplies rose more than expected, adding to the price slide.
Perhaps the biggest chance to cut supply and raise prices could come from the Organization of the Petroleum Exporting Countries, which has acted to ensure stable prices in the past.
But right now, Fielden said, that seems unlikely. Saudi Arabia, the world’s largest producer and often driving OPEC member, recently cut the price at which it was selling oil in Asia – indicating the Saudis may be more interested in keeping market share than stabilizing prices.
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