The oil industry has been struggling with both tumbling demand and in-fighting among producers about reducing output.
Earlier this month, OPEC members and its allies finally agreed a record deal to slash global output by about 10%. The deal was the largest cut in oil production ever to have been agreed.
However, analysts said the cuts were not big enough to make a difference.
Meanwhile, concern continues to mount that storage facilities in the US will run out of capacity, with stockpiles at Cushing, the main delivery point in the US for oil, rising almost 50% since the start of March, according to ANZ Bank.
“We hold some hope for a recovery later this year,” the bank said in its research note.
The drop was also driven by a technicality of the global oil market. Oil is traded on its future price and May futures contracts are due to expire on April 21. Traders will be keen to offload those holdings to avoid having to take delivery of the oil and incurring storage costs.
Brent oil, the benchmark used by Europe and the rest of the world, was slightly weaker, down 0.8% to $27.87 a barrel.
Oil prices have been rising since the OPEC nations, as well as other producers including Russia, decided to restrict output last year.
Last November they agreed to extend those cuts until the end of 2018.
President Donald Trump has said that unless European allies fix what he has called “terrible flaws” in the accord by May 12, he will restore US economic sanctions on Iran.
The other nations that signed the deal – France, Germany, the UK, Russia and China – all want to keep in place the agreement, which has halted Iran’s nuclear program in return for most international sanctions being lifted.
Oil price has surged after reports that OPEC members have agreed some details of a production cut.
Oil prices rose nearly 7% as energy ministers attended November 30 OPEC meeting in Vienna.
Ahead of the meeting Saudi energy minister Khalid Al-Falih had said “there are good chances” a formal deal could be struck.
Two months ago, oil ministers had said full details of the agreement would be finalized at the meeting.
OPEC pledged to limit production by about 700,000 barrels a day, but said Iran would be allowed to increase production.
Oil prices rose then, but the absence of detail prompted some traders to have second thoughts about whether the cartel would actually take firm action.
Saudi Arabia has agreed to cut output by about 500,000 barrels per day at the meeting, Reuters reported.
That would take its output to 10.06 million barrels per day.
Reuters also reported that OPEC has agreed to suspend Indonesia’s membership to allow Iran to set new production levels at 3.797 million barrels per day.
Ahead of November 30meeting, Khalid Al-Falih said “there are good chances” that a detailed deal can be brokered, and that “the spirit is good”.
The Saudi energy minister said his country would have to “take a big cut and a big hit” to current production – and its 2017 forecast – if OPEC production were limited to 32.5 million barrels per day.
“So we will not do it unless we make sure that there is consensus,” Khalid Al-Falih added.
A production freeze for Iran at pre-sanctions levels would be “very considerate of other OPEC members when they’re having to cut,” he said.
“Iran has recovered to its pre-sanctions levels,” Khalid Al-Falih said.
Saudi Arabia has also been discussing a production cut with Russia, he added.
Brent crude rose 6.9% to $50.58 per barrel, while US crude also rose 6.7% to $48.25.
Traders said markets were jittery and prices could swing sharply in either direction depending on developments in Vienna.
A decision to cut has been hindered by a rivalry between Saudi Arabia, OPEC’s top producer, and Iran.
The Saudis have been hesitant to shoulder the lion’s share of a cut, while Iran has resisted reducing its own production, arguing it has yet to recover its output levels after years of sanctions.
Oil prices have fallen further after the International Energy Agency (IEA) forecast weaker demand in 2015.
The IEA, a consultancy to 29 countries, said supply and demand would take “some time” to respond to sharp falls in oil prices.
It said it was too early to expect low oil prices to start constricting a US supply boom.
On December, Brent crude fell to below $63 a barrel, its lowest price since July 2009.
The price of Brent fell to $62.50 a barrel at one point before recovering slightly to $62.67. US crude was trading below $59 a barrel.
The IEA cut its forecast for global oil demand growth next year by 230,000 barrels per day to 900,000 barrels per day on the expectation of lower fuel consumption in Russia and other oil-exporting countries.
Photo Getty Images
Oil prices have been in steep decline since June due to slow demand growth and a US shale oil boom which has increased supply.
Prices “continued to plunge in November and into early December”, the IEA said, adding that, “it may well take some time for supply and demand to respond to the price rout”.
The root cause of the fall in prices was “a surge in non‐OPEC supply to its highest growth ever and contraction in demand growth to five‐year lows”.
It predicted that non-OPEC supply gains would add to a global glut of oil.
The US boom should push non-OPEC production to a record 1.9 million barrels per day this year, IEA said, but this figure should fall to 1.3 million barrels per day in 2015.
In Russia, the IEA said lower global oil prices combined with the effect of sanctions and a “collapsing currency” were likely to have an adverse effect on production.
Crude oil prices have reached a four-year low after Saudi Arabia unexpectedly cut the price of oil sold to the US.
Brent crude fell to near $82 a barrel as worries about global growth also spooked investors.
Earlier, the European Commission reduced its growth forecasts for the eurozone.
Investors are concerned about the US oil industry in the face of slowing growth and lower prices.
Crude oil prices have reached a four-year low after Saudi Arabia unexpectedly cut the price of oil sold to the US
Some worry that low oil prices could hurt domestic US producers dependent on high prices for profitability.
The price cut also sent shares in many energy firms lower, pushing down all three US share indexes.
Surging revenues from the US oil boom have led to calls on the government to remove regulations restricting the sale of US crude oil abroad.
In the interim, the growth in domestic oil production has helped the US trade deficit, as the US has become less dependent on importing foreign oil.
Separately on November 4, the Commerce Department’s latest release showed that the US trade deficit unexpectedly widened in September as exports hit a five-month low, mostly due to economic weakness in Europe.
The Commerce Department said the trade gap increased by 7.6% to $43.03 billion, as China and eurozone orders decrease and the strength of the US dollar hurt exports.
Oil prices fell sharply on Wednesday as economic data from China and Europe sparked worries about global demand.
Brent crude for November delivery fell $3.40 to $108.17 a barrel, while US crude settled $3.75 lower at $88.14 a barrel.
In September, Brent crude hit a peak of $117.95, a four-month high.
Analysts said many factors that had pushed up prices, such as tensions between Iran and Israel, had also abated.
“The energy markets realigned themselves to fundamentals last night in dramatic fashion,” said Justin Harper from IG Markets in a note to clients.
Data from China, released on Wednesday, was one of the factors that led to the sell-off in oil and other commodities.
It showed that China’s services sector expanded at a slower pace in September. It came days after government data indicated that manufacturing continues to slow.
China is a major importer of commodities and a slowdown there makes a huge dent in demand.
That coupled with weakness in European economies signaled that there would be plenty of supply.
“US crude plummeted 4.1% through a combination of over-supply and low demand,” said Justin Harper.
“US stockpiles have reached their highest for 15 years.”
Meanwhile, concerns over possible military action between Israel and Iran also eased.
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