Oil capped its biggest two-year loss on record in New York as expanding US crude stockpiles exacerbated a global glut.
Futures dropped 30% in 2015, and averaged the lowest level since 2004. US supplies rose 102mn barrels over the year, the biggest jump since at least 1920 in government data. The 62% loss since 2013 exceeded the slump driven by the Asian economic crisis from 1997 to 1998.
Oil is trading near levels last seen during the global financial crisis after the Organisation of Petroleum Exporting Countries abandoned output limits at a meeting earlier last month, signalling the oversupply will be prolonged. Additionally, US crude output is poised to grow for a seventh straight year, and Russian producers are proving resilient to the price slump.
“There’s a lot of oil in tanks and we will have to see stockpiles start to decline in a major way before prices recover,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.
Prices rose 1.2% on Thursday as traders covered short positions before the New Year holiday. WTI for February delivery increased 44 cents to settle at $37.04 a barrel on the New York Mercantile Exchange. Total volume traded on Thursday was 40% below the 100-day average at 2.40pm.
Brent for February settlement advanced 82 cents, or 2.2%, to $37.28 a barrel on the London-based ICE Futures Europe exchange. Prices fell 35% in 2015, a third consecutive annual loss. The European benchmark crude closed at a 24-cent premium to New York futures.
The gap between Brent and WTI has shrunk amid speculation the removal of a 40-year ban on US crude exports may ease the nation’s oversupply. But with the spread at parity or negative, shipments into the US will probably remain elevated, which may create storage problems on the Gulf Coast during the first half of 2016, Citigroup Inc said in a research report on Wednesday.
Vitol Group has already committed to buying US shale oil following the lifting of the crude export ban. The Swiss commodity trading company will purchase two cargoes of crude, according to ConocoPhillips, which will supply the crude.
US crude stockpiles rose by 2.63mn barrels through December 25 and production increased for a third week, the EIA said in a report on Wednesday. Inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, climbed to a record 63mn barrels. The hub has a working capacity of 73mn barrels, according to the EIA.
The glut may deepen as the worst flooding across the US Midwest in four years shut some oil pipelines and terminals near St Louis. The biggest to close is Enbridge Inc’s Ozark pipeline, which was booked to carry about 200,000 barrels a day this month to Wood River, Illinois, from Cushing. Russia’s oil output was poised to reach a post-Soviet record of 10.86mn bpd last week, according to Energy Ministry data. Russian companies have been helped by a weaker rouble.