Often turbulent, the oil market had become almost boring the past few months, with prices moving little and hovering around $US51 to $US56 a barrel.
No one is yawning anymore.
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Oil price tumbles
The slump in oil prices extends to a fourth day with prices dropping below $US50 a barrel.
The USÂ oil benchmark price has swooned by 9 per cent since Tuesday, falling below $US50 a barrel for the first time since the Organisation of the Petroleum Exporting Countries decided to cut production in November to support the market.
The immediate impetus for the drop in prices was a report by the Energy Department that USÂ oil stockpiles had bulged by 8.2 million barrels over the past week.
Concerns about the glut grew after Harold Hamm, chief executive of Continental Resources, a major oil producer, said that domestic production was growing so fast it could "kill" the market.
Most energy analysts, however, said that while the renewed selling by commodity traders might send oil prices below $US45 a barrel for a time, the most likely outlook was for prices to bounce back and to continue to climb over the next few years.
"The herd mentality kicks in," said Joel H. Moser, chief executive of global energy investor Aquamarine Investment Partners, as he tried to explain the wave of selling by traders.
"The fundamentals have not shifted," he added. "Demand continues to steadily rise and industrial players are moderately gearing up production."
![Don't be fooled, says Saudi Arabia's energy minister, Khalid Al-Falih: "We see the green shoots of the recovery."](/web/20170312132945im_/http://www.theage.com.au/content/dam/images/g/t/1/a/6/3/image.related.articleLeadwide.620x349.guvxa5.png/1489197783740.jpg)
Traders who move the commodity markets from day to day had become overly complacent that oil prices would continue to climb from the lows of under $US30 a barrel of a year ago, energy analysts said, as it appeared that the Opec agreement would hold. When prices plateaued, traders became nervous.
Opec members and a few other major oil producers have slashed production by nearly 2 million barrels a day, which is helping to balance the 96-million-barrel-a-day global market in much of the world.
In the past, such agreements had been spoiled by cheating. This time, political and technical problems are holding back production by those who have broken such agreements before, including Algeria, Nigeria and Venezuela.
Around the world, commercial oil inventories are around 300 million barrels above the average over the past five years, which is weighing on prices. A major cause is increased production in the United States.
Drilling frenzy
A drilling frenzy in West Texas, a gradual recovery of production in shale fields in other states and the coming online of a few offshore projects in the Gulf of Mexico have added several hundred thousand barrels a day of production in the United States in recent months. The timing, amid the doldrums of winter and before most Americans take their spring and summer vacations, has meant a buildup of supplies.
Daily domestic oil production averaged 8.9 million barrels last year, and the Energy Department is forecasting an average of 9.2 million barrels this year and 9.7 million barrels in 2018.
The department projects the national average price for regular gasoline to be $US2.40 a gallon this year and $US2.44 next year, slightly above the current national average of $US2.30.
One reason analysts do not expect a major decline in oil prices is the continuing turmoil in Libya, one of Africa's biggest producers, where fighting broke out in recent days at several ports from which oil is shipped.
Production in the country is down 80,000 barrels a day, and there is a rising danger that most exports will be interrupted. Reports of disruptions in Libya were one reason oil prices began trading Friday higher before slumping again to below $US49 a barrel.
'Green shoots'
Speaking at the annual CERAWeek energy conference in Houston this week, the Saudi energy minister, Khalid A. al-Falih, said he was disappointed that global inventories had not declined more quickly, but he expressed cautious optimism about market prices.
Falih projected that global demand would increase by 1.5 million barrels a day this year, and that declines in production in China, Mexico and the North Sea would balance increased production in the Brazil, Canada and the United States.
"We see the green shoots of the recovery," he said, "driven by a better outlook and fundamentals."
Many analysts expect a rise in oil prices in the coming years, partly because investments in exploration have been cut sharply amid the downturn of the past 2 1/2 years and partly because political risks remain high in many producing countries like Iraq and Venezuela.
"If we don't see a substantial investment rebound, we may see the market tighten by 2020," said Fatih Birol, executive director of the International Energy Agency.
"We see a significant chance of prices rising sharply."
The New York Times
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