*Producers focusing on market share rather than on supporting prices, likely to stay depressed
20 January 2016, London — Oil prices slid on Wednesday, with U.S. oil futures falling to their lowest level since 2003, dragged down by a slide in global financial markets and continued concerns about the glut of crude.
Fears about an economic slowdown in China, the world’s second biggest economy, have rattled financial markets at the start of the year and added to the bearish sentiment on the oil market.
“The bearish mood continues,” said Michael Nielsen, oil analyst at Global Risk Management. “Market participants are digesting the mediocre Chinese economic data and the outlook for Iranian oil flooding the already oversupplied oil market—the outcome seems to be continued fear of demand slowdown and supply increase.”
On the New York Mercantile Exchange, February-dated West Texas Intermediate futures were trading down 2.3% at $27.80 a barrel. Earlier in the session, WTI hit its lowest price since the fall of 2003 at $27.32 a barrel.
Brent crude for March delivery, the global oil benchmark, fell 1.5% to $28.32 a barrel on London’s ICE Futures exchange.
The renewed selloff on global bourses added to the bearish sentiment engulfing markets since the beginning of the year. Hong Kong stocks hit a 3 1/2 -year low and Japan’s Nikkei closed in bear market territory, extending this year’s selloff in Asia. European stocks also traded sharply lower.
Oil investors fear that demand in China, which consumes around 12% of world’s crude, may falter as the country shifts to a less energy-intensive economic model. On Tuesday, the Chinese authorities announced the country’s gross domestic product rose 6.9% in 2015, its slowest pace in 25 years.
“Bearish fundamentals have clearly been weighing on oil prices [this year], but financial selling on macro concerns has also played a major role,” Citi said in a report. The bank cut its oil price forecasts on the back of concerns about the Chinese economy and sees both benchmarks averaging $34 a barrel this quarter and $31 in the next.
The slump in oil prices continues to take a toll on big oil companies. On Wednesday Royal Dutch Shell PLC said its profit fell by as much as 50% in the fourth quarter. Earlier this week, Patrick Pouyanné, CEO of France’s Total SA, warned his company would likely report a 20% decline in adjusted net profit for 2015 because of the collapse in oil prices.
On the supply front, there are few signs that the global glut of crude, which has battered prices since 2014, will abate anytime soon.
The International Energy Agency, a top energy monitor, said on Tuesday that “unless something changes, the oil market could drown in oversupply.” The IEA projects that oil markets will still have a surplus of 1.5 million barrels a day in the first half of 2016.
The lifting of international sanctions on Iran could add 300,000 barrels a day of crude by the end of the first quarter, reducing the effect of the 600,000-barrel-a-day reduction expected from producers outside the Organization of the Petroleum Exporting Countries, the IEA said.
A further reason for the sharper selloff in oil on Wednesday was the expiration of the February WTI contract, with most traders have already closed their positions and started to trade on the March contract, said Daniel Ang, a Phillip Futures energy analyst. The March contract was down 1.9% at $28.98 a barrel.
Nymex reformulated gasoline blendstock—the benchmark gasoline contract—fell 0.6% to $1.02 a gallon. ICE gas oil changed hands at $259 a metric ton, down $11.50 from the previous settlement.
*Georgi Kantchev, Jenny W. Hsu contributed to this article