Oil prices steadied on Tuesday but not before plumbing new lows seen during the 2009 financial crisis as an intensifying supply glut sparked fears the world will run out of storage for crude. Brent and US crude futures sunk beneath $40 a barrel, hitting February 2009 levels and extending Monday's 6 percent rout, before paring losses on what traders said was most likely short-covering.
Brent was down 10 cents at $40.63 a barrel by 2:15 pm EST (1915 GMT), after setting a session low at $39.81. US crude's West Texas Intermediate (WTI) futures were up 20 cents at $37.85, after sliding to $36.64 earlier. "It's most likely shorts taking profit and exiting their positions," said Pete Donovan, broker at New York's Liquidity Energy, referring to the rebound. "Fundamentals remain bleak but the question is also how much more aggressive can sellers be when the downside becomes more limited?"
Oil's sharpest selloff since summer came after Friday's meeting of the Organisation of the Petroleum Exporting Countries (Opec) which all but abandoned price support for crude through production cutting the group once resorted to. Opec also failed for the first time in decades to agree to a production ceiling. Instead, its core members, led by top crude exporter Saudi Arabia, appeared to be readying for new battles for share in a market with record stockpiles and consuming about 2 million barrels per day (bpd) above production.
In an indication of market battle, Saudi Arabia was shipping more crude to Asia over the last two months of the year, trade sources said. Meanwhile, the crude glut in the US is expected to have grown for the 11th straight week with analysts polled by Reuters forecasting a 300,000-barrel build for last week. Industry group The American Petroleum Institute releases its report at 4:30 pm (2130 GMT) and the US government will issue official inventory data on Wednesday. On the bullish side, the US government raised its projected decline rate for crude output next year, predicting a 570,000 barrels bpd cut versus a 520,000 bpd reduction a month ago.
Banks such as Goldman Sachs have said oil could fall to $20. But defiant bullish traders such as Andy Hall were not ready to give up their bets on a faster-than-thought recovery. "There is certainly still a chance of lower prices in the next month or so," Hall wrote in a December 1 letter to investors in his Astenbeck Capital Management hedge fund, which was headed for its worst year after losing 26 percent through November. "But weighing that possibility against the virtual inevitability of higher prices down the road leads to a simple conclusion: now is not the time to exit the market," he added in the letter.