Oil holds below US$48 as US crude stockpiles seen boosting glut

[MELBOURNE] Oil in New York held below US$48 a barrel before government data that's forecast to show US crude inventories expanded for a second week.

West Texas Intermediate futures dropped as much as 1.2 per cent. Stockpiles in the US, the world's biggest oil consumer, probably gained by 2.7 million barrels last week, according to a Bloomberg News survey before government data on Thursday. Iraq, the Organization of the Petroleum Exporting Countries (Opec) second-largest producer, said it needs to boost output and exports to compensate for lower prices.

Oil slumped almost 50 per cent last year as the US pumped crude at the fastest rate in more than three decades and Opec resisted calls to reduce production. Prices will rebound rather than extend declines to as low as US$20 a barrel, the group's Secretary-General Abdalla El-Badri said in Davos, Switzerland.

"The consensus view is that there's about a two million barrel-a-day supply overhang at the moment," Ric Spooner, a chief strategist at CMC Markets in Sydney, said by phone. "When we start seeing cuts, we'll see an immediate response to forward prices, assuming it's a significant reduction."

WTI for March delivery decreased as much as 55 US cents to US$47.23 a barrel in electronic trading on the New York Mercantile Exchange and was at US$47.53 at 2:50pm Singapore time. The contract rose US$1.31 to US$47.78 on Wednesday. The volume of all futures traded was about 35 per cent below the 100-day average.

Brent for March settlement was down three US cents, or 0.1 per cent, at US$49 a barrel on the London-based ICE Futures Europe exchange. It climbed US$1.04 to US$49.03 on Wednesday. The European benchmark crude traded at a premium of US$1.47 to WTI.

US crude stockpiles probably increased to 390.5 million barrels in the week ended Jan 16, according to the median estimate in the Bloomberg survey of 10 analysts before the Energy Information Administration's report. Supplies in the prior period were more than 9 per cent above the five-year average for this time of year.

The nation produced 9.19 million barrels a day through Jan 9, the most in weekly records dating back to January 1983, said the EIA, the Energy Department's statistical arm. The US oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked shale formations from Texas to North Dakota.

Fracking is "destructive" and the US is flooding the market, according to Venezuela's President Nicolas Maduro. The Opec member's oil price reached US$38 a barrel, he said during a national address broadcast on radio and television.

Iraq has lost about 50 per cent of its revenue because of the price slide, Deputy Prime Minister Rowsch Nuri Shaways said in Davos on Wednesday. The country is pumping at four million barrels a day, Oil Minister Adel Abdul Mahdi said on Jan 19.

Producers outside Opec should be the first to reduce their output amid a surplus that's pushed crude below US$50 a barrel, Mr El-Badri said in an interview with Bloomberg Television at the World Economic Forum.

"The price will not go to US$20 or US$25, I think the price will stay at where we are now," he said. "We have seen this before - prices coming down very fast and go up very slow. But prices will rebound."

Opec's 12 members, which supply about 40 per cent of the world's oil, maintained their collective quota at 30 million barrels a day at a Nov 27 meeting in Vienna. Output averaged 30.2 million in December, data compiled by Bloomberg show.

Crude's rapid drop and volatility in the market may deter investment in all types of energy needed to meet future demand, Maria Van Der Hoeven, the executive director of the International Energy Agency, said in an interview in Abu Dhabi.

BLOOMBERG