NEW YORK (DTN) -- New York Mercantile Exchange oil futures spiraled to fresh lows across the board at the open of regular trade after the International Energy Agency warned that the consequences of the freewheeling production policy by the Organization of Petroleum Exporting Countries is an extended global supply glut through the end of 2016.
In its Oil Market Report for December released this morning, IEA said the decision by OPEC to scrap its official oil production ceiling at their Dec. 4 meeting is a “de facto acknowledgment of current oil market reality.”
“The exporter group has effectively been pumping at will since Saudi Arabia convinced fellow members a year ago to refrain from supply cuts and defend market share against a relentless rise in non-OPEC supply,” said the Paris-based agency.
IEA said the de facto acknowledgment last week “appears to signal a renewed determination to maximize low-cost OPEC supply and drive out high-cost non-OPEC production regardless of price,” and there is evidence the strategy is starting to work.
The bearish supply outlook dominated the oil market and overshadowed positive economic news in the United States. The Bureau of Labor Statistics said U.S. inflation rebounded last month, with the producer price index gaining 0.3% in November after falling 0.4% in October and 0.5% in September. That data has so far been overshadowed by the IEA report.
At 8 a.m. CT, NYMEX January West Texas Intermediate was down 54 cents at $36.22 barrel, near a fresh 6-1/2-year low at $36.12. The ICE January Brent contract fell by 68 cents to $39.05 bbl, off a seven-year low at $38.90.
The NYMEX January ULSD futures contract dropped 2.44 cents to $1.2007 gallon, off a 6-1/2-year spot low of $1.1955. January RBOB futures eased 0.30 cents to $1.2772 gallon, reversing lower after posting a one-week high at $1.3012.
On Wall Street, U.S. stock indices fell following a dive in oil, with the dollar also weaker versus rival foreign currencies.
IEA said OPEC supply has averaged 31.7 million barrels per day since June, with Saudi Arabia and Iraq producing at or near record rates. Saudi Arabia has produced above 10.0 million bpd since March to satisfy domestic and global supply requirements, and Iraq has held production above 4.0 million bpd first breached in June.
In response, global oil prices have plunged to a seven-year low, with Brent crude trading below $40 bbl. IEA said the lower price environment has “clearly taking a toll on non-OPEC supply,” pointing to a drop in annual non-OPEC supply growth from 2.2 million bpd starting in 2015 to less than 300,000 bpd in November.
The agency said global oil demand growth likely peaked in the third quarter at 2.2 million bpd, and expects demand growth to “slow to a still-healthy” 1.2 million bpd in 2016, “as support from sharply falling oil prices begins to fade."
George Orwel can be reached at email@example.com
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