Crude oil is getting slammed on Monday, with front-month contracts for Brent and West Texas Intermediate each down more than 6 per cent at their lows of the day.
Meanwhile, Western Canadian Select, a heavier blend of crude, trades at US$16.32 per barrel.
A supply response to lower prices continues to be slow in coming, and there are signs that demand growth from China is poised to moderate in the year ahead, according to Barclays analysts.
This leg downwards in oil has been accompanied by a fresh round of bearish commentary, with Morgan Stanley calling for prices to fall as low as $20 per barrel while Guggenheim sees crude hitting US$25 per barrel.
For the Brent grade, the entire futures curve is shifting downwards. West Texas Intermediate futures contracts are down through 2021, though prices beyond that period have actually gained since Friday.
A steeper curve increases the attractiveness of buying crude oil with the intention of selling it at a later date. Analysts estimate that a steeper curve is necessary to make storing oil on a vessel profitable for traders.
“Just a quick glimpse along the forward curve serves as an endorsement for the ‘lower for longer’ mantra that swirls like a sand storm round the current crude complex,” wrote Matt Smith, director of commodity research at ClipperData. “The December 2016 contract is fast approaching a test of US$40, while you have to go out to 2020 to see a price above US$50. The furthest you can go out on the futures curve is 2024, and even then prices do not break US$54. That certainly is lower for longer.”
On Twitter, oil traders and analysts are documenting the day’s madness as the commodity trades at levels not seen in over a decade:
Can feel the panic in here, we’re getting calls from countarparties we don’t deal with often look for markets in the back of the curve.
— Oil Merchant (@EnergyRosen) January 11, 2016
Share creation of crude oil linked ETFs/ETNs have been on a tear. Shares outstanding +2,000% since oil’s 2014 peak pic.twitter.com/v1bdphFk5I
— Guillermo (@groditi) January 11, 2016
Food for thought – crude oil is at 13-year lows while the energy sector is at 5-year lows. $CL_F $XLE pic.twitter.com/xCC3yoWdMX
— ivanhoff (@ivanhoff) January 11, 2016
Oil (WTI) briefly traded with a $30 handle before bouncing back to 31.30 – could we see the key 30 level break this week? $CL_F
— Matt Weller, CMT (@MWellerFX) January 11, 2016