Oil's worst-ever summer signals price rout is nowhere near done

[NEW YORK] If crude's slump back to a six-year low looks bad, it's even worse when you reflect that summer is supposed to be peak season for oil.

US crude futures have lost 30 per cent since the start of June, set for the biggest drop since the West Texas Intermediate crude contract started trading in 1983. That beats the summer plunges during the global financial crisis of 2008, the Asian economic slump in 1998 and the global supply glut of 1986.

It even surpasses the decline of 2011, when prices fell as much as 21 per cent over the summer as the US and other large oil-importing nations released 60 million barrels of oil from emergency stockpiles to make up for the disruption of Libyan exports during the uprising against Muammar Qaddafi.

WTI, the US benchmark, fell to a six-year low of US$41.35 a barrel Friday. It may slide further, according to Citigroup Inc.

"Summer is when refineries are all running hard, so actual demand for crude is as good as it gets," Seth Kleinman, London- based head of energy strategy at Citigroup Inc, said by e-mail.

Opec's biggest members are pumping near record levels to defend their market share and US production is withstanding the collapse in prices and drilling. The oil market is still clearly oversupplied and "it will get more so as refiners go into maintenance," Kleinman said.

Oil demand usually climbs in the summer as US vacation driving boosts purchases of gasoline and Middle Eastern nations turn up air-conditioning. Crude has sunk this year even US gasoline demand expanded, stimulated by a growing economy and low prices. Total gasoline supplied to the US market rose to an eight-year high of 9.7 million barrels a day last month, according to US Department of Energy data.

Crude could fall to US$10 a barrel as Opec engages in a "price war" with rival producers, testing who will cut output first, Gary Shilling, president of A. Gary Shilling Co, said in an interview on Bloomberg Television on Friday.

"Opec is basically saying we're not going to cut production, we're going to see who can stand lower prices longest," Shilling said. "Oil is headed for US$10 to US$20 a barrel."

BLOOMBERG