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Oil prices finish below $34

Jan. 8, 2016, 10:39 a.m.

U.S. oil prices joined the global benchmark at levels last seen in 2004, hammered by the market turmoil in China, the world’s second-biggest consumer of the fuel.

Worries about slowing economic growth, especially in China, are helping to drive the sharp drop in crude prices. With producers in the U.S. and Mideast still pumping oil at a fast clip, a drop-off in demand would add to the global supply glut that has shaved about 70% off prices over the past 18 months.

The U.S. benchmark crude-oil contract tumbled 70 cents, or 2.1%, to $33.27 a barrel Thursday on the New York Mercantile Exchange. That is the lowest close since February 2004.

Just a month ago, oil markets were preoccupied with the idea of oil staying below $40 a barrel. Now a number of analysts say $30 a barrel is the next stop for the battered commodity.

“It looks more likely than not that we will drop below $30,” said Chris Main, oil strategist at Citigroup. “And with fundamentals looking pretty terrible, we could stay there for a couple of months.”

Some analysts are even calling for oil to drop into the $20-a-barrel range, a view that grabbed headlines back in September when it was espoused by Goldman Sachs analysts. At that time, the investment bank was a rare outlier. Then, the average forecast of 12 investment banks polled by The Wall Street Journal was for $47 a barrel in the first quarter of this year.

Wall Street and industry analysts have repeatedly been proved wrong during the oil rout, whose speed and scope have defied even the most pessimistic forecasts.

“Demand won’t be coming to the rescue this time, with China and the way the world economy is shaping up,” said Doug King, chief investment officer at RCMA Asset Management and manager of that firm’s $225 million Merchant Commodity hedge fund. China consumes about 12% of the world’s oil, making it the world’s No. 2 user after the U.S.

Brent, the global benchmark, fell 48 cents, or 1.4%, to $33.75 a barrel Thursday on ICE Futures Europe. It has dropped every day this week and on Wednesday sank to its lowest levels since June 2004.

The historic drop in crude-oil prices has inflicted pain world-wide, hitting the bottom lines of crude producers, the finances of oil-producing countries and financial bets on the energy sector.

Producers of so-called heavy oil, which tends to be of a lower quality than the main benchmarks, have been particularly hard hit. Western Canadian Select, the benchmark for heavy crude from the Canadian oil sands, traded about $14 a barrel below the U.S. benchmark Thursday, putting its price in the teens. And the OPEC basket, comprised of 13 types of crude sold by members of the Organization of the Petroleum Exporting Countries, had declined to $29.71 a barrel Wednesday.

Some analysts and traders don’t believe the current low prices can last much longer. Companies eventually will stop pumping money-losing barrels, curbing global supplies and setting the stage for a rebound. “Fundamentally, prices below $35 a barrel are hardly sustainable, unless global growth slows markedly,” said Norbert Ruecker, head of commodities research at Julius Baer.

In the near term, though, the prospect of more barrels from Iran is looming over the market. Sanctions on the Persian Gulf producer could be lifted this quarter, giving Iranian producers the green light to ship more crude into an already oversupplied market.

“When you just sit back and look at oil, there’s nothing positive,” said Dominick Chirichella, analyst at the Energy Management Institute.

Oil perked up during intraday trading, rising briefly into positive territory, before resuming its decline.

Traders mentioned market chatter that OPEC was planning an emergency meeting. But OPEC delegates told the Journal that they haven’t been contacted about such an event. OPEC hasn’t agreed to any output cuts since prices started falling in mid-2014, and the group’s production rose sharply last year. OPEC’s next meeting is scheduled for June.

Gasoline futures fell 1.58 cents, or 1.4%, to $1.1460 a gallon, the lowest settlement since February 2009. Diesel futures slid 1.51 cents, or 1.4%, to $1.0656 a gallon, the lowest level since July 2004.

Source: Wall Street Journal

Disclaimer: The views expressed in this news report do not necessarily reflect the position of the National Development Planning Commission (NDPC)