Crude oil prices hit fresh seven-year lows on Friday as the International Energy Agency (IEA) warned global oversupply could worsen in the new year. Brent slipped below $39 per barrel for the first time since December 2008 as the IEA, which advises developed nations on energy, warned that demand growth was starting to slow. "The technicals and the fundamentals are singing from the same hymn sheet," said Tamas Varga, oil analyst with PVM Associates. "We will not see support until we hit the lows of 2008." Brent crude futures were down 60 cents at $39.13 a barrel at 1058 GMT, bouncing slightly from a session low of $38.90.
China, the world’s fifth-biggest producer last year, has reduced output by about 300,000 barrels a day this year, more than the combined cuts announced Saturday by non-OPEC countries, excluding Russia, as part of a deal coordinated with the producer group. The decline is expected to continue next year, with Chinese production shrinking as much as 200,000 barrels a day, according to consultant Energy Aspects Ltd.
China’s output slumped as state-owned firms shut wells at mature fields that are too expensive to operate amid last year’s price crash. Production during the first 10 months of the year averaged about 4 million barrels a day, down about 7 percent from the same period last year, according to Bloomberg calculations based on National Bureau of Statistics data.
Malaysia and Brunei were the only Asian nations in the group of producers outside the Organization of Petroleum Exporting Countries that agreed to cut output by a combined 558,000 barrels a day starting Jan. 1. The region will use 32.88 million barrels a day of oil this year, accounting for more than a third of global consumption, according to data from the International Energy Agency. Daily demand is forecast to expand to 33.7 million barrels in 2017.
Oil prices surged as trading resumed Monday, rising as much as 6.6 percent in London to the highest intraday level since July 2015. Brent crude has climbed more than 20 percent since OPEC announced on Nov. 30 that it would cut production for the first time in eight years and was at $56.54 a barrel at 7:04 a.m. in New York.
“If all of these cuts are realized in the market, we could see prices potentially rise beyond $65 by May when the next OPEC meeting is convened,” said Sushant Gupta, director of Asia Pacific refining at Wood Mackenzie Ltd. in Singapore.