Oil extended losses below $48 a barrel on Tuesday amid speculation that U.S. inventories will expand, deepening a global supply glut that has driven prices to a five-year low.
Futures declined for a fourth day. West Texas Intermediate for February delivery dropped $2.11, or 4.2 percent, to $47.93 a barrel on the New York Mercantile Exchange, the lowest settlement since April 2009.
Stockpiles in the world’s biggest oil-consuming country probably rose by 700,000 barrels last week, a Bloomberg News survey showed before a government report today. The market faces “more problems” this year, according to Morgan Stanley, with surging output in Russia and Iraq contributing to a surplus that Qatar estimates at 2 million barrels a day.
“The path of least resistance is lower,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “There is no bullish news. OPEC refuses to cut production and there is no evidence of falling production outside of OPEC.”
U.S. crude inventories probably increased to 386.2 million barrels in the week ended Jan. 2, according to the Bloomberg survey before the Energy Information Administration releases its weekly report. Inventories of crude and gasoline were at their highest seasonal level since EIA weekly data started.
“The market is obsessed with the supply side,” said Hans van Cleef, energy economist at ABN Amro Bank NV in Amsterdam. “Prices have dropped too fast and too far, but with the market this negative it’s hard to see a trigger which could turn the sentiment. If U.S. inventories are higher than expected, we could see Brent below $50 this week.”
Saudi Arabia, the biggest OPEC producer, will keep a “solid will” and maintain the nation’s stability even with falling crude prices, King Abdullah said in a speech read by his crown prince.
U.S. output climbed to 9.14 million barrels a day through Dec. 12, the highest in weekly estimates that started in January 1983, according to the EIA. OPEC’s 12 members, which supply about 40 percent of the world’s oil, pumped 30.24 million a day in December, exceeding their collective target of 30 million for a seventh straight month.
“We need to see the speculators leave the market before we can find a bottom,” Rob Haworth, a senior investment strategist in Seattle at U.S. Bank Wealth Management, said by phone. “There also has to be a reduction in output here. The fall in rig counts is a good sign but not enough. We need to see actual production slow.”