Brent Crude Futures Fall to Four-Year Low on Supply Glut

Brent crude fell to the lowest level in four years on concern global supply is outpacing demand. West Texas Intermediate held at a two-year low. Both grades have collapsed into a bear market as shale supplies boost U.S. output to the most in almost 30 years and global demand growth weakens. The largest OPEC producers are responding by cutting prices, sparking speculation that they will compete for market share rather than reduce supply. “The supply boom is ongoing,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “Nobody sees any reason to buy so people just keep selling off. The Saudis will have to cut production to stabilize the price.” Brent for November settlement declined $1.26, or 1.5 percent, to close at $83.78 a barrel on the London-based ICE Futures Europe exchange, the lowest close since Nov. 23, 2010. Volume was 52 percent above the 100-day average for the time of day. Prices have decreased 27 percent from the June high. WTI for November delivery fell 6 cents to $81.78 a barrel on the New York Mercantile Exchange, the lowest since June 28, 2012. Prices are down 24 percent from this year’s June high of $107.26. The volume of all futures traded about double the 100-day average. WTI traded at a $2 discount to Brent on the ICE. WTI extended losses after the American Petroleum Institute was said to report U.S. inventories rose 10.2 million barrels last week, according to Bain Energy. Futures dropped 1.3 percent to $80.81 a barrel in electronic trading at 4:42 p.m. Gasoline Prices The average regular gasoline price in the U.S. fell 0.9 cent a gallon to $3.177 yesterday, according to Heathrow, Florida-based motoring group AAA. That’s the lowest since February 2011. U.S. crude stockpiles probably rose 2.45 million barrels last week, adding to the previous week’s gain of 5.02 million, a Bloomberg survey showed before an Energy Information Administration report tomorrow. The refinery utilization rate was forecast to decline for a third week, the survey showed. U.S. refiners schedule maintenance for September and October as they transition to winter from summer fuels. The EIA, the Energy Department’s statistical arm, will release its weekly petroleum inventory report at 11 a.m. tomorrow in Washington, a day later than usual because of the Columbus Day holiday. Domestic Output Domestic production increased to 8.88 million barrels a day in the seven days ended Oct. 3, the highest level since 1986, according to EIA estimates. The U.S. will pump 9.5 million barrels a day in 2015, the most since 1970, the EIA said. A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies in shale formations in North Dakota, Texas and other states. “With U.S. production growing so strong, it’s a tough market to balance,” Greg Sharenow, executive vice president at Newport Beach, California-based Pacific Investment Management Co., who helps manage $26 billion of commodity investments, said by phone yesterday. The falling price may discourage U.S. producers from pumping more oil, said James Williams, an economist at WTRG Economics, an energy-research firm in London, Arkansas. “As prices drop, the higher-cost producers are going to slow their drilling activity,” Williams said. “We may see slower production growth at current prices.” OPEC Output The Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world’s oil, is raising output amid speculation its members are fighting for market share. The group pumped 30.47 million barrels a day in September, the most since August 2013, its monthly report on Oct. 10 showed. The group is meeting next month in Vienna. “OPEC is going to continue to pump at these relatively high levels and tolerate these lower prices at least until the meeting in late November,” said Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, which oversees about $120 billion of assets. “It looks like we’re going to test where U.S. production will begin to falter.” Biggest Discount Iraq said on Oct. 12 that it will sell its Basrah Light crude to Asia at the biggest discount since January 2009, following cuts by Saudi Arabia and Iran. Middle East producers almost always follow the lead of Saudi Arabia, OPEC’s largest member when setting export prices. Iran isn’t concerned about the slide in prices, according to its deputy oil minister. The period of declining prices will pass, said Roknoddin Javadi, who is also the managing director of National Iranian Oil Co., according to the state-run news agency Mehr. The International Energy Agency said Oct. 14 that global oil demand will expand this year at the slowest pace since 2009. Consumption will rise by 650,000 barrels a day this year, 250,000 fewer than the prior estimate, the Paris-based IEA said in its monthly market report. Bank of America Corp. lowered its 2015 forecast for Brent to $98 a barrel from $108, and its outlook for WTI to $90 from $96, according to an e-mailed report. Brent still has “strong support” at $85 a barrel because OPEC will probably trim the supply surplus, while WTI may fall to $75 as new pipelines bring additional supply to the U.S. storage hub at Cushing, Oklahoma, the bank said. To contact the reporter on this story: Moming Zhou in New York at mzhou29@bloomberg.net