Oil traders are betting that crude prices will hit a 20-year low of $20 a barrel as prices fell again yesterday and as Gulf producers stood firm on their plan to turn the screws on shale drillers in the United States.
According to Nymex, the New York exchange, the number of contracts or options to sell US crude at $20 in June has jumped from close to zero at the beginning of the year to 13 million barrels of oil.
The data shows how the outlook for prices has deteriorated in a month. At the beginning of December, the most bearish move was the quadrupling of the number of options to sell 880,000 barrels of US crude at $40 for December 2015 in the space of a fortnight. That indicated traders believed that prices would bottom out just below $40 by the end of the year — yet prices have nearly reached that level already.
Yesterday, the price of Brent, the international benchmark for crude, fell by $2.24 to a near-six-year low of $45.19 and traded below West Texas Intermediate, the American benchmark, for the first time since July 2013. Analysts said that the discount on Brent reflected Europe’s weakening economy and expectations that the US ban on crude exports, in place since the oil crisis of the 1970s, would be loosened.
Because of the export ban, the US shale oil boom created a domestic glut of crude that resulted in WTI being heavily discounted against Brent. The discount averaged $6.64 last year. This month the Obama administration finally bowed to pressure from politicians and the industry to relax some restrictions on exports.
Prices slumped again yesterday after the United Arab Emirates, a close ally of Saudi Arabia, ruled out a production cut by Opec. Suhail bin Mohammed al-Mazrouei, the UAE’s energy minister, urged non-Opec producers to cut output instead.