Oil slides under US$35 as glut worsens while Fed rate hike sinks commodities

A customer refuelling his vehicle at a petrol station in France on Dec 11.
A customer refuelling his vehicle at a petrol station in France on Dec 11. PHOTO: BLOOMBERG

HONG KONG (BLOOMBERG) - Oil traded below US$35 (S$49.56) a barrel and headed for a third weekly decline amid a surge in US inventories and the first interest rate increase by the Federal Reserve in almost a decade.

Futures held losses in New York on Friday (Dec 18) after closing overnight at the lowest price in almost seven years, and are down 2.3 per cent this week. Crude stockpiles have expanded to 490.7 million barrels, the highest for this time of year since 1930, the Energy Information Administration reported. Goldman Sachs warned of "high risks" that prices may sink even lower as supplies swell. The Fed's decision bolstered the US dollar, diminishing the investment appeal of commodities.

Oil is trading near levels last seen during the global financial crisis on signs a record surplus will worsen. The Organization of Petroleum Exporting Countries earlier this month effectively abandoned output limits while the White House on Wednesday announced its support for a deal reached by congressional leaders that would end the nation's 40-year restrictions on crude exports.

"The major driver this week has been US dollar strength against a backdrop of ongoing refusal to respond rationally to the current market surplus on the supply side," said Mr Michael McCarthy, a chief markets strategist at CMC Markets in Sydney. "We're just not seeing the normal production cuts we'd expect given the plummet in prices."

West Texas Intermediate for January delivery was at US$34.72 a barrel on the New York Mercantile Exchange, down 23 cents, at 9.13am in Hong Kong. The contract dropped 57 cents to US$34.95 on Thursday, the lowest close since February 2009. Total volume traded was about 33 per cent below the 100-day average. Prices have lost 35 per cent this year, set for a second annual decrease.

Brent for February delivery was 21 cents lower at US$36.85 a barrel on the London-based ICE Futures Europe exchange. It has slid 2.9 per cent this week. The European benchmark was at a premium of 86 cents to WTI for the same month.

The Bloomberg Commodity Index, which measures the returns on 22 raw materials, fell for a sixth day on Thursday to close at the lowest since March 1999.