Crude-oil futures fell almost 4% Tuesday (Oct. 3) to close under $59 a barrel, pulling the benchmark contract to its lowest level in more than a year, with pressure coming from swelling U.S. inventories, a lack of risks to output and doubts that key oil producers will take formal action to reduce supplies and stem the drop in prices.
CBS MarketWatch reported that the market has “high inventories, high levels of exploration activity, no supply shortage, low consumption at this time of the year and no Gulf hurricanes — with lower chances of having one,” said James Williams, an economist at WTRG Economics.
“The combination of these factors is consistent with prices below $50 per barrel.”
Crude for November delivery closed down $2.35 at $58.68 a barrel on the New York Mercantile Exchange, after reaching a low of $58.60. These are levels the contract hasn’t seen since late July 2005.
The contract fell 3% Monday amid speculation that even if Venezuela and Nigeria cut production as they have said they will, it would do little to dent hefty supplies of crude and its products.
On Tuesday, traders questioned whether leading oil producers, notably Saudi Arabia, would lower production to stop the decline in prices.
Front-month prices have lost more than 20% in the past two months.
Among the oil products, November unleaded gasoline futures fell 5.2 cents to close at $1.4567 a gallon and November heating oil lost 4.79 cents to end at $1.6539 a gallon.
Venezuela and Nigeria said last week that they would cut production by a total of 170,000 barrels per day as of Oct. 1, but the Organization of the Petroleum Exporting Countries has denied that there was any coordinated plan for its members to cut output, according to Dow Jones Newswires reports.
“Both of these cuts are symbolic only, and will hurt those two producing countries far worse than it will impact the crude-oil market,” said Charles Perry, chairman of energy-consulting firm Perry Management.