Oil prices took another tumble Wednesday to fresh five-year lows on signs that the global supply glut driving the sell-off is deepening.
New data out of the U.S., the world’s biggest oil consumer, showed an unexpected increase in crude supplies last week. Meanwhile, the latest projections from the Organization of the Petroleum Exporting Countries point to lower demand for the group’s oil in 2015.
The benchmark U.S. oil price slid 4.5 percent to $60.94 a barrel, the lowest level since July 2009 on the New York Mercantile Exchange. It was the biggest one-day drop since Nov. 28, the session that followed OPEC’s decision to maintain its oil-output target.
Brent crude, a gauge of global prices, fell 3.9 percent, or $2.60, to $64.24 a barrel, also the lowest since July 2009 on ICE Futures Europe.
As prices have plunged more than 40 percent in about six months, market watchers have scrambled to adjust forecasts and explain the glut of oil that is forcing producers to cut prices as they compete for buyers. Supply growth, particularly in the U.S., exceeded expectations, while demand growth has been moderate because of a slowdown in China and Europe.
“What I’m looking at is a market that has no reason yet to bounce,” said Jan Stuart, global energy economist at Credit Suisse Group AG. “OPEC basically put itself out of play. … There’s no indication that (the market is) getting any less weak.”
OPEC, which controls about one-third of global oil production, opted last month to maintain its output quota of 30 million barrels a day, even though demand for OPEC crude is expected to fall below that level. OPEC said Wednesday that demand for its oil will decline to 28.9 million barrels a day in 2015, down from 29.4 million barrels a day in 2014.
The amount of crude that refiners and traders have on hand rose by 1.5 million in the week ended Dec. 5 to 380.8 million barrels, enough to keep the nation’s refineries humming at their current rates for about 23 days, according to the U.S. Energy Information Administration. That compares with expectations for a decline of 2.7 million barrels based on estimates of analysts surveyed by The Wall Street Journal.
U.S. crude-oil output last week rose to 9.1 million barrels a day, the highest level since 1983, according to the EIA.
“Obviously, there’s still unabated strength in the production sector,” said John Kilduff, founding partner of Again Capital in New York. “This is just feeding on itself.”
Oil companies that have made big bets on shale-rock formation in the U.S have become victims of their own success.
Their shares have been pummeled by the decline in oil prices, which is likely to cut deeply into their revenues.
Shares in Denver-based Whiting Petroleum Corp. declined 10.3 percent to $30.07. Shares in Colorado’s largest producers also slipped: Noble Energy dropped 4.4 percent to $41.78; Anadarko Petroleum declined 3.55 percent to $75.63; and Encana shed 4.5 percent to finish at $12.74.
Even bigger energy companies with more diversified operations took a hit Wednesday.
These companies have raced to adjust their production and spending plans to suit an environment of sharply lower oil prices.
BP PLC outlined plans Wednesday to reduce spending on development by as much as $2 billion. U.S. oil giant ConocoPhillips this week said it would reduce capital spending by 20 percent.
Denver-based PDC Energy is slashing its 2015 capital budget by 14 percent over this year to $557 million, president Bart Brookman told a Wells Fargo energy symposium Wednesday.
Spending in Colorado will be up slightly, however, at $516 million, Brookman said. The deep cuts will come at PDC’s Utica shale operation in Ohio.
The company will operate five rigs but will not add a sixth rig this summer as previously planned and will focus on the core of the Wattenberg Field, where yields are higher, Brookman said.
If oil prices stay in the low $60s, PDC will keep five rigs running, Brookman said. If prices drop into the $50s long-term — for 12 months or more — the company would drop to three or four rigs.
Shares in PDC rose 1.25 percent Wednesday to $35.53.
But plans to cut investment in new production in the U.S. won’t immediately lower global oil supplies, said Jack Rivkin, chief investment officer at Altegris Advisors LLC, which oversees about $2.5 billion.
Most of Altegris’ managed-futures funds have wagers that oil prices will fall, Rivkin said.
Trying to guess where prices will bottom out is too risky for John McLane, president of Mobius Asset Management, which manages $6.5 million. McLane has small wagers that oil prices will fall but is holding most of his energy fund in cash.
“People always use the expression ‘Catching a hot knife.’ This is like catching a nuclear bomb,” he said. “This does not have any twinge of stopping.”
Denver Post staff writer Mark Jaffe contributed to this report.
