New York: West Texas Intermediate (WTI) crude pared the biggest weekly drop since January amid signs of a global glut. Brent, the benchmark for more than half the world’s oil, gained after reaching a four-year low in intraday trading.
WTI closed on Friday more than 20 per cent below its June peak, a common definition of a bear market. Brent is down 22 per cent from the June high. Both crudes settled higher for the first time in four days after falling more than 2 per cent during trading on Friday.
The world’s two most-traded crude futures are collapsing because demand growth is slowing at a time when output is expanding from countries including the United States and Russia, the largest suppliers outside Organisation of Petroleum Exporting Countries (Opec). The Opec increased oil production by the most in almost three years last month as Libyan output surged.
“The market is catching its breath after a week of collapse,” Mike Wittner, the head of oil market research at Societe Generale in New York and the third-most accurate forecaster for WTI among analysts in the past eight quarters, said by phone. “The fundamentals are weak but don’t justify this. It’s concern about Opec that’s got the market rattled.”
WTI for November delivery rose 5 cents to settle at $85.82 a barrel on the New York Mercantile Exchange. Futures fell 4.4 per cent this week after dropping 4.1 per cent last week. The contract touched $83.59 today, the lowest intraday price since July 3, 2012. The volume of all futures traded was 46 per cent above the 100-day average.
Brent for November settlement gained 16 cents to end the session at $90.21 a barrel on the London-based ICE Futures Europe exchange. The contract reached $88.11, the lowest since December 2010. It slipped 2.3 per cent this week, the third straight weekly decline. Volume was 35 per cent higher than the 100-day average.
The European crude closed at a $4.39 premium to WTI, the most since September 25.
The 14-day relative strength index for Brent was 20.7328 today and has been below 30 since Sept. 30, according to data. The 14-day RSI for WTI slipped to 28.8204. An RSI below 30 typically signals a market is oversold.
“These markets are tremendously oversold,” Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston, said by phone. “Even in the most bearish markets there’s an occasional bounce, while bullish markets retreat at some point. A pause doesn’t mean we can’t drop to $80 next week, or for that matter rebound.”
Opec increased output by 402,000 barrels a day in September to 30.47 million, the group said in its monthly oil market report yesterday. It was the biggest monthly gain since November 2011 and the largest production in more than a year. The organization predicted demand will accelerate in the next few months.
“The market’s very weak because there’s considerable oversupply,” Amrita Sen, chief oil market analyst at consultants Energy Aspects Ltd. in London, said by phone. “There’s no sign from Opec that they’re cutting back.”
Saudi Arabia and Iran, both Opec members, are discounting their main crude export grades to Asian buyers by the most in almost six years, prompting speculation that some Opec nations are competing for market share.
State-run National Iranian Oil Company cut official selling prices of its crude to buyers in Asia for November, two people with knowledge of the pricing decision said yesterday. The decrease came a week after Saudi Arabia, the world’s largest oil exporter, reduced the price of Arab Light crude for Asia to the lowest since December 2008.