NEW YORK (Reuters) - Crude oil futures tumbled 6 percent on Monday, reaching their lowest in nearly seven years, after OPEC failed to address a growing supply glut, while a stronger dollar made it more expensive to hold crude positions.
Brent and U.S. crude settled at or near February 2009 lows in belated reaction to the Organization of the Petroleum Exporting Countries' (OPEC) policy meeting on Friday which ended without an agreement to lower production.
OPEC oil ministers dropped any reference to the group's output ceiling for the first time in decades, highlighting disagreement among members about how to accommodate Iranian barrels once Western sanctions are lifted.
"What matters from here is whether there'll be any meaningful production cuts in the U.S., which don't seem to be coming," said Doug King, chief investment officer in London for the Singapore-based Merchant Commodity Fund. As of Monday, the $220 million hedge fund was flat on the year after its bearish oil views helped it recoup a 10 percent loss through November.
"Price-wise, the market could be going for max pain after this," King said. "The leader to the downside will be probably be WTI, because that's where the production cuts have to come."
WTI, the West Texas Intermediate benchmark for U.S. crude
WTI forward contracts <0#CL:> through 2024 all dropped below $60 a barrel.
U.S. shale oil output was expected to fall for a ninth consecutive month in January, the U.S. Energy Information Administration said on Monday. But the total decline of about 116,000 barrels per day was less than a tenth of the projected global oversupply in crude.
A Reuters poll of analysts forecast that U.S. commercial crude oil stocks likely remained unchanged last week after 10 straight weeks of builds. [EIA/S]
The dollar <.DXY> added to the weight on oil, rising against a basket of currencies after U.S. jobs data on Friday bolstered the case for a rate hike later this month.
The selloff extended to the refined fuels market, with U.S. heating oil
OPEC's output of more than 30 million bpd has compounded an oil glut, pushing production by 0.5 million to 2 million bpd beyond demand.
OPEC kingpin Saudi Arabia, the world's biggest oil exporter, thinks unconventional oil producers, including U.S. shale drillers who have fed the glut, will eventually be squeezed out of the market by high production costs and low selling prices.
Saudi Aramco Chief Executive Amin Nasser told a conference in Doha he hoped to see oil prices adjust at the beginning of next year as unconventional supplies start to decline.
Patrick Pouyanne, CEO of French oil company Total
Despite the overwhelming bearish view, some said oil could turn volatile if U.S. refiners continue ramping up gasoline production due to steady profit margins for the fuel.
"There's seasonal crude de-stocking in December for tax purposes, so anyone heavily shorting WTI should be beware," said Tariq Zahir, fund manager at New York's Tyche Capital Advisors, who is otherwise typically bearish on U.S. crude.
Prices could also violently snap back on short-covering.