WTI dropped for the fifth time in six days. The deal allows the shipment of 300,000 barrels a day of Iraqi Kirkuk blend to Turkey’s Mediterranean port of Ceyhan along a pipeline operated by the Kurds, Safeen Dizayee, a spokesman for the Kurdish Regional Government, said today by phone. Iraq is OPEC’s second- biggest oil producer. OPEC may hold an emergency meeting in the first quarter of 2015, Venezuela’s Foreign Minister Rafael Ramirez said in an interview with Panorama newspaper.
Oil has collapsed into a bear market amid the highest U.S. output in more than three decades and signs of slowing global demand growth. The Organization of Petroleum Exporting Countries, responsible for about 40 percent of the world’s oil supply, resisted calls from members including Venezuela and Iran to reduce its quota of 30 million barrels a day at a Nov. 27 meeting in Vienna.
“The Kurds and Iraqis reached an agreement which is going to put additional supply on the market, which is putting downward pressure on the market,” Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. “This comes less than a week after an OPEC meeting, which is terrible timing.”
WTI for January delivery (NYMEX:CLF15) fell 87 cents, or 1.3 percent, to $68.13 a barrel at 11:23 a.m. on the New York Mercantile Exchange. The volume of all futures traded was 11 percent above the 100-day average for the time of day. Futures climbed 4.3 percent yesterday, the biggest gain since Aug. 3, 2012, after earlier touching $63.72, the least since July 2009. Prices are down 31 percent this year.
Brent for January settlement (NYMEX:SCF15) dropped 91 cents, or 1.3 percent, to $71.63 a barrel on the London-based ICE Futures Europe exchange. Volume was 14 percent above the 100-day average. Futures closed up 3.4 percent yesterday, the biggest advance since October 2012. The European benchmark crude traded at a $3.53 premium to WTI.
“We are in for a very bumpy ride downward,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “This could mean terribly low crude prices for a terribly long period of time.”
Saudi Arabia would only consider cutting oil production if other countries, including non-OPEC producer Russia, joined in limits, Reuters reported, citing former Saudi intelligence chief Prince Turki bin Faisal.
The Kurdish Regional Government has been shipping crude to Turkey this year in defiance of the central government. Today’s deal allows traders to buy the crude without the threat of legal action, which will encourage production growth, Richard Mallinson, a geopolitical analyst at researcher Energy Aspects, said by phone.
“In the wake of the OPEC meeting, we’re looking at a heavy oversupply from the beginning of next year,” Mallinson said.
Under the deal, the Kurds will hand over at least 250,000 barrels a day to be exported by the federal government, according to a statement from Iraqi Prime Minister Haidar Al- Abadi’s office. Payments to Kurdish forces known as Peshmerga were also agreed on.
Iraq has been ravaged by sectarian conflict since June when extremist Islamic State fighters seized Mosul, the country’s biggest northern city. The militants also threatened to take Erbil, capital of Iraq’s Kurdish region.
The threat posed by Islamic State “has brought the Kurds back into the tent,” Helima Croft, chief commodities strategist at RBC Capital in New York, said by phone. “The additional income is needed by the central government. This benefits both the government and the Kurds.”
OPEC exceeded its official target for a sixth straight month in November, even after reducing supply. The 12-member group pumped 30.56 million barrels a day, 424,000 barrels a day fewer than in October, according to a Bloomberg survey of oil companies, producers and analysts. The group is next scheduled to meet on June 5.
U.S. drilling will slow as producers cut back because of falling oil prices, Harold Hamm, who helped discover the potential of North Dakota’s Bakken shale formation, said in an interview yesterday.
“Will this industry slow down? Certainly,” according to Hamm, who is chairman and chief executive officer of Continental Resources Inc. There’s no need for people to panic, he said.
U.S. crude output increased to 9.08 million barrels a day through Nov. 21, the most in weekly records that started in January 1983, according to data from the Energy Information Administration. An EIA report tomorrow will probably show that inventories expanded by 1.75 million barrels last week, according to a Bloomberg survey of analysts.
Gasoline futures dropped 4.03 cents, or 2.1 percent, to $1.8407 a gallon in New York. Ultra low sulfur diesel fell 3.29 cents, or 1.5 percent, to $2.1795.
Regular gasoline at U.S. pumps fell to the lowest level since October 2010. The average retail price slipped 0.9 cent to $2.76 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s biggest motoring group.