Oil prices drop as OPEC output rises; Brent below US$40

A motorist filling up his vehicle at a petrol kiosk. (Photo: AFP/Federico Parra)

NEW YORK: Oil prices continued to tumble on Thursday (Dec 10) as OPEC reported its November output reached a three-and-a-half-year high, with the cartel seeking to drive out of the market higher cost producers.

US benchmark West Texas Intermediate for January delivery fell to its lowest level since the beginning of 2009, losing 40 cents to US$36.76 a barrel on the New York Mercantile Exchange.

European benchmark Brent oil for January delivery shed 38 cents to US$39.73 a barrel in London. It was Brent's first close below the US$40 line since February 2009.

"You're just seeing a continuing of the bearish psychology: inventories are very high, production is high, demand is weak and there's just no real news out there to motor the prices," said Mike Lynch of Strategic Energy & Economic Research.

The Organisation of Petroleum Exporting Countries reported their collective production rose by 230,100 barrels a day in November to 31.7 million barrels as the group battles to hold market share in the face of sinking prices.

But OPEC in its monthly report also predicted that its strategy to squeeze high-priced producers, like the shale oil drillers in the United States, would bear fruit next year.

OPEC forecast that production by countries outside the cartel in 2016 will fall by 380,000 barrels per day to average 57.14 million per day. Half of that, it said, would come from the United States.

But those forecasts did little to mitigate the existing market glut. OPEC supplies were 200,000 barrels a day higher in November over October, and non-OPEC output 280,000 barrels higher.

"This combination of stronger OPEC and non-OPEC supply translates into a larger current surplus, even as the overall forecast for 2016 was maintained at a similar level to a month ago," said Tim Evans of Citi Futures.