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Brent crude headed for a bear market on speculation rising global supplies will be more than enough to meet slowing demand.
Prices fell for a fourth day after closing almost 20 per cent below their June peak on Thursday, a common definition of a bear market. OPEC (Organization of Petroleum Exporting Countries) September oil production rose to a one-year high and Saudi Arabia cut prices this week. US output is near the most since 1986. The Bloomberg Dollar Spot Index climbed to a four-year high.
"You are seeing pretty good growth in oil supply and that's weighing on the market," said Greg Sharenow, executive vice-president at Pacific Investment Management Co, who helps manage $26 billion of commodity investments.
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"You have the strengthening dollar. And this has been a big part of how it's been trading recently." Brent for November settlement slipped $1.90, or 2 per cent, to $91.52 a barrel at 11:30 am New York time on the London- based ICE Futures Europe exchange. The volume of all futures traded was about 27 percent above the 100-day average. Prices have decreased 5.6 per cent this week.
West Texas Intermediate (WTI) crude for November delivery fell $1.59, or 1.8 per cent, to $89.42 a barrel on the New York Mercantile Exchange. It traded below $90 on Thursday for the first time since April 2013. Prices have slipped 4.4 per cent this week. The US benchmark earlier fell to a discount of as little as $1.51 to Brent on ICE, the smallest gap since August 2013, before widening out.
Gasoline drops
Gasoline futures dropped as much as 2.4 per cent to $2.3511, the least since January 2011. A lower price for Brent can cut US gasoline prices by reducing the cost of crude and fuel imports to the US East Coast.
"I am looking for WTI to establish a floor possibly as low as $85, which could possibly take Brent to $88," said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. "The Brent-WTI spread would probably end up staying at $2 or $3. US production is going to continue to increase." The Bloomberg Dollar Spot Index increased as far as 1,080.05. A stronger dollar reduced crude's investment appeal.
Output from the 12-member OPEC rose by 413,000 barrels a day to 30.935 million in September, a Bloomberg survey of oil companies, producers and analysts showed. That's the highest level since August 2013.
US domestic crude production rose to 8.87 million barrels a day in the week ended September 19, the most since March 1986, according EIA estimates.
Cut price
Saudi Arabia reduced the price for Arab Light to Asia by $1 a barrel to a discount of $1.05 to the average of Oman and Dubai crude, the lowest since December 2008. Official selling prices, or OSPs, are regional adjustments Aramco makes to price formulas to compete against oil from other countries.
The International Energy Agency last month reduced its projections for demand growth this year and in 2015, citing a weakening economic outlook. Higher exports from Libya and booming US production "deepened the overhang in crude markets," the Paris-based IEA said.
"Supply is plentiful and demand is not keeping up with supply now," said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. "That's the fundamental equation and it looks more likely that we'll continue to go lower."
Losing confidence
Goldman Sachs Group Inc. said it's losing confidence in its forecast that Brent will recover to $100 a barrel next year. While the bank is maintaining its projection for now, it says that a lack of signs of accelerating global economic growth and uncertainty over OPEC's production plans amid rising Libyan output are weakening its conviction.
The Brent-West Texas Intermediate spread earlier shrank as a government report showed US non-farm payrolls rose more than expected last month. Payrolls increased 248,000, the Labor Department reported. The median forecast of economists in a Bloomberg survey called for a 215,000 advance.
"The jobs report is a blockbuster," said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. "It increases demand expectations here in the US."
