OIL TRADES NEAR 6-YEAR LOW AS OPEC FAILS TO TURN FOCUS FROM GLUT

[Wiljor]

Oil traded near its lowest close in almost six years as OPEC’s warning that prices may surge without new investment in production failed to shift the market’s focus from more immediate signs of a supply glut.

U.S. crude inventories probably rose to 401.9 million barrels last week, the highest in records dating back to August 1982, a Bloomberg News survey shows before a government report on Wednesday. A spike to $200 a barrel is possible without adequate investment for the long term, OPEC Secretary-General Abdalla El-Badri said Monday. Prices pared losses as the dollar weakened.

Oil slumped almost 50 percent last year as the U.S. pumped crude at the fastest rate in more than three decades and the Organization of Petroleum Exporting Countries resisted calls to reduce output. Prices may drop as low as $30 a barrel, Gary Cohn, the president of Goldman Sachs Group Inc., said in an interview with CNBC on Monday.

Oil Prices

“The market is trying to stabilize but the oil inventory data that will come out tomorrow will negate all that,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. “Any rally will be short-lived. I won’t be surprised to see prices in the 30s in a few weeks.”

West Texas Intermediate for March delivery rose 22 cents to $45.37 a barrel at 10:24 a.m. on the New York Mercantile Exchange. The contract lost 44 cents to $45.15 on Monday, the lowest close since March 2009. The volume of all futures traded was about 29 percent below the 100-day average for the time of day.

Estimating Surplus

The Bloomberg Dollar Spot Index dropped 0.6 percent. A weaker dollar increases oil’s investment appeal.

Brent for March settlement climbed 9 cents to $48.25 a barrel on the London-based ICE Futures Europe exchange. The European benchmark crude traded at a premium of $2.86 to WTI on the ICE.

OPEC, which supplies about 40 percent of the world’s oil, is open to a meeting with non-member producers to tackle the global glut, El-Badri said in an interview in London, estimating the surplus at 1.5 million barrels a day.

He didn’t offer a date for when oil could reach $200 a barrel and said the market would be brought back into balance by a reduction in supply, rather than an increase in demand.

“It looks like the low prices are starting to worry them,” said Carl Larry, a Houston-based director of oil and gas at Frost & Sullivan.

Saudi Arabia won’t balance global crude markets on its own even as prices fall to levels that are “too low for everybody” and threaten investment needed to meet long-term demand, the head of Saudi Arabian Oil Co. said.

‘Singlehanded’ Balance

“Supply and demand and the rules of economics will govern. It will take time for the current glut to be removed,” Chief Executive Officer Khalid Al-Falih said at a conference in Riyadh. “Saudi Arabia will not singlehandedly balance the market in a downturn,” he said, reiterating government policy.

U.S. crude stockpiles probably climbed 4 million barrels in the week ended Jan. 23, according to the Bloomberg survey before a report from the Energy Information Administration. The 399.8 million level reached in April is so far the highest in EIA weekly data series begun in 1982.

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked shale formations from Texas to North Dakota. Production averaged 9.19 million barrels a day through Jan. 9, the most in weekly records compiled since January 1983, data from the Energy Department’s statistical arm show.

Retail regular gasoline averaged $2.038 a gallon Monday, gaining for the first time since September, according to AAA.

Bloomberg.com