Concerns about global growth and rising oil production have hit crude prices hard with analysts expecting further volatility this week.
“We are now into a capitulation phase, as the price of both WTI and Brent crude have broken levels that very few saw as possible just a couple of months ago,” Saxo Bank said yesterday.
Oil prices closed slightly higher on Friday, crawling out of deep session losses in a market gripped by worries about weakening global demand and a supply glut.
“These markets are tremendously oversold,” Kyle Cooper, the director of research with IAF Advisors and Cypress Energy Capital Management in Houston, told Bloomberg News. “Even in the most bearish markets there’s an occasional bounce, while bullish markets retreat at some point. A pause doesn’t mean we can’t drop to $80 next week, or for that matter rebound.”
Friday’s volatility came as traders positioned ahead of the weekend after a week marked by equities sell-offs and rising worries about slowing global economic growth, especially in the euro zone.
US benchmark West Texas Intermediate for November delivery edged up five cents to close at $85.82 a barrel on the New York Mercantile Exchange.
Brent North Sea crude for delivery in November recovered from a four-year low to score a gain of 16 cents, settling at $90.21 a barrel in London.
In earlier Asian trade, WTI sank to $83.59, its lowest level since July 3, 2012, and Brent had tumbled to $88.11, touching the lowest level since December 1, 2010.
US production has increased 65 per cent in the past five years as companies have used horizontal drilling and hydraulic fracturing to tap into hydrocarbon-rich layers of underground shale rock.
Opec last month increased production by 402,000 barrels a day to 30.4 million barrels, the group said last week. It was the biggest monthly gain since November 2011 and the highest production in more than a year.
“Volatility skew went ballistic,” said BMO Capital Markets.
The stabilisation in prices by the end of trade was a sign of “people trying just to get flat for the weekend. Nobody really knows what is going to happen,” said Carl Larry of Oil Outlooks and Opinions.
Said Matt Smith of Schneider Electric: “Fears of a slower global economy are not just impacting the crude complex, [they are] spreading to broader markets to now manifest in a full-on flight from risk across the board.”
The oil market action came as equities markets on both sides of the Atlantic were hit by selling amid growing signs that the euro zone was at risk of recession and the global economy was slowing. Concerns about the Ebola epidemic in West Africa also factored in.
“The price slide has doubtless become more speculative in nature of late as the deteriorating global economic outlook, growing risk aversion and ample supply prompt more and more market players to bet on falling prices,” said Commerzbank in a research note.
The next Opec meeting is scheduled for November 27, and until then the market will be keeping a close eye on signs of how the group will handle the alling prices and ensuing hit on revenues, Saxo Bank said.
The Venezuelan foreign minister, Rafael Ramirez, on Friday called for a special meeting of the body to address prices.
* with agencies
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