Brent continues to fall

23 October 2014 – Brent crude fell for a second session running on Thursday, hitting a one-week low just above $84 a barrel as a sharp rise in crude inventories in top oil consumer the US reinforced oversupply concerns.

US crude inventories surged by 7.1 million barrels last week to 377.68 million barrels, more than double the 2.7-million-barrel increase that analysts had forecast, data from the Energy Information Administration showed.

Oil inventory“Certainly there’s quite a bit of oil hanging around, with rapid growth in key shale production areas,” said Phin Ziebell, an oil analyst at National Australia Bank.

“But I think a key driver this winter could be the US if a cold winter could slow down some production as it becomes harder to extract.”

Brent crude for December delivery eased eight cents to $84.63 a barrel early on Thursday, after hitting $84.23 earlier, its lowest since 16 October. The benchmark dropped $1.51 on Wednesday, its biggest daily loss in more than a week.

US front-month crude was down 8 cents to $80.44 a barrel, a shade above a more than two-year low of $79.78 hit last week. Front-month West Texas Intermediate fell more than $2 on Wednesday, also its steepest drop in just over a week.

About a third of US shale output would be uneconomical if oil prices fell to $80 per barrel, Bernstein Research analysts said this week, differing widely from the International Energy Agency’s estimate of a little over 4%.

A private survey showing that China’s manufacturing activity quickened to a three-month high in October failed to lift investor sentiment. China is the world’s second biggest oil consumer and the expected strength of its economy is a key factor in judging oil demand outlook.

The HSBC/Markit manufacturing purchasing managers’ index for China edged up to 50.4 from 50.2 in September, although the level of output in factories fell to a five-month low of 50.7.

A weak housing market, sluggish domestic demand and erratic exports have dampened Chinese activity this year. Data on Tuesday showed China’s economy grew at its slowest pace since 2009 in the third quarter, at just 7.3%.

Amid slack oil demand and rising supply, pressure is mounting for Opec to cut output during its 27 November meeting to support prices.

Opec has to reduce oil output by at least 500,000 barrels per day to curb oversupply of about 1 million bpd, Libya’s Opec governor Samir Kamal said.

So far, Libya is among a minority, and the only one of four African Opec members, calling for an Opec cut.

Top Opec producer Saudi Arabia has sent signals it is comfortable with markedly lower oil prices.

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