Oil prices now heading towards six-year lows

SINGAPORE (AFP) - Oil extended its "disconcerting" plunge towards six-year lows in Asia on Tuesday after Wall Street giant Goldman Sachs lowered its price forecast, adding to concerns about a supply glut and weak demand.

US benchmark West Texas Intermediate (WTI) for February delivery was down 71 cents at US$45.36 (S$56.71) a barrel in late morning trade and Brent crude for February dropped 70 cents to US$46.73.

On Monday, Brent plunged more than 5 per cent to close below US$50 for the first time since April 2009, and WTI fell 4.7 per cent to its weakest since March 2009.

Analysts are already predicting prices will eventually fall below the psychological level of US$40 a barrel this year. Goldman Sachs predicted WTI to hit US$39 a barrel in six months, down from its US$75 forecast previously.

It also cut its outlook for Brent, adding that it thought the oil market would continue to experience oversupply for several months.

"There is no numeric target but the depth of fall in oil prices is disconcerting," said market analyst Michael McCarthy at CMC Markets Sydney.

"We need to see more significant falls in shale drilling production before the supply glut is overturned and prices stabilise."

The excess in global supplies has been attributed to an increase in shale gas production in the United States and a return of Libyan oil into the market following a prolonged disruption due to a civil strife in the North African crude producer.

There are some signs pointing to an increase in crude oil demand, with China reporting a trade surplus rise of 45.9 per cent last year, but analysts said the market remains jittery.

"Although China's demand and growth is not as weak as it seems, the market is in panic mode at the moment and we are seeing capitulations," said McCarthy.