Oil prices fall on U.S. storage glut, ongoing economic woes
Oil prices slid on Thursday as record U.S. crude inventories at the Cushing delivery point and worries about a global economic slowdown weighed on markets, and Goldman Sachs said prices would remain low and volatile until the second half of the year.
And in a sign that producers are still willing to accept low prices if that gives them market share, Iran offered its crude to Asia at a discount to rival Saudi Arabia.
International benchmark Brent crude futures LCOc1 were trading at $30.44 per barrel at 0810 GMT, down 40 cents.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $26.88 per barrel, down 57 cents and not far off the $26.19 a barrel intra-day low hit in January that was the lowest since 2003.
Inventories at the Cushing, Oklahoma delivery point for U.S. crude futures rose to an all-time high just shy of 65 million barrels, data from the government’s Energy Information Administration (EIA) showed on Wednesday.
The U.S.-based Schork Report said that seasonally falling crude oil demand towards the end of the winter heating season also weighed on markets.
Analysts said that the recent strength in Brent’s premium over WTI contracts was supported by U.S. slowing demand and brimming storage.
“Brent is holding much stronger than WTI which reflects the current oversupply in the U.S.,” said Singapore-based brokerage Phillip Futures.
The overhang in oil supplies, together with an economic slowdown in China, means that prices will remain low until the second half of the year, Goldman Sachs said in a note to clients.
“The risks of China growth concerns and oil price downside … materialised faster than we anticipated,” the bank said.
“We expect oil prices will continue to fluctuate between $20 per barrel (operational stress level) and $40 per barrel (financial stress level) with significant volatility and no price trend until 2H2016,” it added.
In physical oil markets, Iran has priced its heavy crude oil to Asian buyers slightly cheaper than rival producer Saudi Arabia, an unusual move indicating Tehran is willing to offer discounts to regain market share following the lifting of sanctions.
Iran traditionally sets monthly prices to customers in Asia – its biggest market – in parallel with Saudi Arabian crude prices, yet for March it offered buyers its supplies at a discount of 10 cents per barrel compared to Arab Medium, a Saudi grade of similar quality.
Oil prices have fallen almost 75 percent since mid-2014 as competing producers pump 1-2 million barrels of crude every day in excess of demand, just as China’s economy grows at its lowest rate in a generation.