West Texas Intermediate oil tumbled into a bear market on concern rising global supplies will be more than enough to meet slowing demand. Brent crude slipped to the lowest level in 27 months.
WTI joined Brent in falling more than 20 percent from this year's June peak, meeting a common definition of a bear market. Shale oil is set to boost U.S. crude output to the most in more than three decades, while last month supplies from OPEC rose and Russian output neared a post-Soviet record. Saudi Arabia, the world's biggest exporter, cut prices for November exports to Asia to the lowest since 2008. The IMF reduced its global growth forecast for this year and next.
"The bear market is indicative of the global economic slowdown," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy, said by phone. "The dynamic has changed. Commodities are all about supply and demand and both are negative at the moment."
WTI for November settlement dropped $1.54, or 1.8 percent, to close at $85.77 a barrel on the New York Mercantile Exchange. It was the lowest settlement since Dec. 10, 2012. The volume of all futures traded was 24 percent above the 100-day average.
Brent for November delivery fell $1.33, or 1.5 percent, to end the session at $90.05 a barrel on the London-based ICE Futures Europe exchange. It was the lowest close since June 21, 2012. The contract traded below $90 today for the first time since June 2012. Volume was 45 percent higher than the 100-day average. The North Sea oil closed at a $4.28 premium to WTI.
The International Monetary Fund said on Oct. 7 that the world's economy will expand by 3.8 percent next year, down from a forecast of 4 percent in July. The International Energy Agency reduced demand projections for this year and next in a monthly report on Sept. 11.
"There's a plethora of negative news on the demand side," Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said by phone. "It's simple economics. There's a potential decline in demand while supplies continue to grow."
Germany's economy is on the edge of recession as exports to China and Russia sag, according to a report by four economic institutes. They cut the 2014 growth outlook for Europe's biggest economy to 1.3 percent from a forecast of 1.9 percent in April. The economy, which shrank 0.2 percent in the second quarter from the previous three months, posted zero growth in the third and will expand 0.1 percent in the fourth.
"This is a historic moment for the market," Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York, said by phone. "The German numbers today were really bad and point to lower demand. At the same time supply keeps growing."
Barclays Plc reduced its fourth-quarter Brent price forecast to an average of $93 from $106, according to an e- mailed report today. The bank said that falling demand, a rising U.S. dollar and the revival of Libyan production crude production were responsible for lower prices. The bank cut its 2015 Brent price forecast to $96 a barrel from $107.
The Organization of Petroleum Exporting Countries, which supplies about 40 percent of the world's crude, pumped 30.935 million barrels a day in September, a Bloomberg survey of producers and analysts show. That's the highest level in 13 months. Libyan output climbed by 280,000 barrels a day to 780,000 last month, the highest level since July 2013.
Iran trimmed prices for November crude shipments to Asia, according to two people with knowledge of the pricing decision. Saudi Arabia reduced prices for November exports to Asia to the lowest since 2008, according to a notice last week. The Saudi cuts were interpreted by banks including Commerzbank AG and Citigroup Inc. as the start of a potential price war between OPEC members seeking to maintain market share as demand growth slows.
"The reporting that Iran's cutting November prices is adding to concern that there will be a struggle with the Saudis over market share," Yawger said.
WTI dropped 1.7 percent yesterday after a government report showed U.S. crude supplies jumped the most since April. Crude inventories expanded by 5 million barrels last week, the Energy Information Administration reported. U.S. crude production increased to 8.88 million barrels a day in the week ended Oct. 3, the most since March 1986, according to EIA estimates.
Fuel prices also fell after inventories climbed. Gasoline supplies advanced 1.18 million barrels to 209.7 million in the week ended Oct. 3, yesterday's EIA report showed. Stockpiles of distillate fuel, a category that includes diesel and heating oil, rose by 439,000 barrels to 126.1 million.
"Two factors have been driving oil prices lower," Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said by phone. "Worries about economic conditions, underlined by the reports about German growth, and ample supplies, demonstrated by the big build in U.S. supply."
November gasoline futures decreased 4.35 cents, or 1.9 percent, to close at $2.2749 a gallon on the Nymex. It was the lowest settlement since Nov. 30, 2010. Pump prices fell 1.3 cents to $3.254 a gallon nationwide yesterday, the least since December, according to AAA, the largest U.S. motoring group.
Ultra low sulfur diesel for November delivery declined 3.93 cents, or 1.5 percent, to settle at $2.5366 a gallon. It was the lowest closing price since June 22, 2012.
"The drop in crude prices is good news for consumers," Kilduff said.