Producers hold ground despite oil price slump

Oil fell in 2014 by the most since the 2008 global financial crisis as US producers and the Organisation of Petroleum Exporting Countries ceded no ground in their battle for market share amid a supply glut.

The US benchmark ended at a five-year low yesterday, capping a 46% drop in 2014, as stockpiles of crude oil and gasoline reached seasonal record highs and as Opec produced more than its quota in December for a seventh month.

Goldman Sachs said it expected a “far lower” new normal for prices and Barclays said oil had “further downside risk”.

The slump in oil has roiled currencies including the Russian ruble and the Nigerian naira and squeezed government budgets in producing nations including Venezuela and Ecuador. It has also boosted China’s emergency crude reserves and helped shrink fuel subsidies in India and Indonesia.

US drivers may save as much as $75bn (€62bn) at petrol pumps in 2015, said AAA, the country’s largest motoring group. Low prices have prompted producers including ConocoPhillips and Continental Resources to plan spending cuts for 2015.

“The feature of the year is clearly the increase in production in North America,” said Michael Hiley, head of energy OTC at LPS Partners in New York.

“It’s finally got to the tipping point where increases in production overwhelm demand. It’s having a very negative impact on the Russian economy as well as Iran, Venezuela. But clearly it’s a long-term good for the world economy.”

Crude production accelerated to 9.14m barrels a day through December 12, the fastest rate in weekly data that started in January 1983, EIA data show.

“The real story is the shale revolution and the fact that Saudi Arabia, the 500lb gorilla, refuses to be the one to make the cut to support prices,” said Tariq Zahir, a commodity fund manager at Tyche Capital Advisors.

“Everyone is fighting for market share here.”

Opec, which pumps about 40% of the world’s oil, produced 30.24m barrels a day in December, according to a Bloomberg survey, down from 30.36m in November.

The group decided to maintain its output quota at 30m barrels a day at a meeting in the Austrian capital Vienna on November 27.

“In the near term, and by that I mean 30 to 60 days, crude will be under a lot of pressure,” said Dan Heckman, a national investment consultant at US Bank Wea-lth Management .

“It will take time to work off this inventory glut.”

Americans already saved $14bn on the motor fuel in 2014, according to AAA.

Pump prices in the US dropped to a national average $2.257 a gallon Tuesday, the lowest since May 2009, according to AAA.

The administration of US President Barack Obama opened the door for expan-ded oil exports by clarifying that a lightly processed form of crude known as condensate can be sold outside the United States.

The guidelines released on Tuesday do not end the ban on most crude exports, which the US Congress adopted in 1975 in response to the Arab oil embargo.

Yesterday’s “selloff is a fitting end to what’s been a difficult year for the oil industry,” Adam Wise, who helps run a $6bn oil and gas bond portfolio as a managing director at John Hancock in Boston, said.

“We have excess supply.”

* Bloomberg