LONDON/SINGAPORE (Sept 12): Brent crude oil fell below $98 a barrel on Friday as concerns over weak demand and plentiful supplies prompted investors and traders to dump the contract, while a strong dollar created further headwinds.
Brent futures have sold off hard this week, hitting a two-year low on Thursday at $96.72 a barrel. On Friday, short-covering provided some support early in the session but by the time U.S. traders arrived at their desks the market had resumed its slide.
ICE Brent futures for October were down 18 cents at $97.90 a barrel by 1230 GMT, putting the international oil benchmark on course for its biggest weekly loss since the week to Aug. 1.
The October contract expires on Monday, adding to the selling pressure, as investors and traders have been rolling their positions forward into November.
U.S. crude was 9 cents higher at $92.92 a barrel after closing up $1.16 in the previous session.
Analysts said the market had initially found some support after testing multi-year lows on Thursday, with some investors viewing oil as oversold.
"There was a big bounce in WTI (U.S.) crude yesterday, which is a reflection of the fact that we've seen such a big sell off recently that the market was getting a bit over-extended," said Ole Hansen, senior commodity strategist at Saxo Bank.
But the overall trend remained firmly to the downside, with analysts at Jefferies Bache predicting that October Brent could hit $95 a barrel before Monday's close.
Crude faced heavy selling on Thursday due to comments in the International Energy Agency's (IEA) monthly report that weaker consumption in China and Europe had caused global oil demand growth to soften at a remarkable pace.
This was confirmation of a situation that has assailed physical crude markets all summer. Sluggish demand from European and Asian refiners has kept physical prices under pressure and created a glut of oil in the Atlantic Basin. As a result, traders have been stockpiling barrels.
The IEA cut its demand growth projections by 150,000 barrels per day (bpd) to 900,000 bpd for 2014 and by 100,000 bpd to 1.2 million bpd in 2015.
"In the IEA report we saw there is a big difference between the push in new supply from outside of OPEC and the fairly slow consumption growth," said Bjarne Schieldrop, chief commodity analyst at SEB Commodity Research.
As well as a build in shale oil output from the United States, Libyan production has risen to just over 800,000 bpd and is expected to hit 1 million bpd in October.
"It's very unstable, you never know how long it will last, but it is there, and we have refineries going into turnaround at the same time," Schieldrop said.
Saudi Arabia, holder of the world's largest spare output capacity, cut production by 400,000 bpd in August. But the market shrugged off this news, suggesting it wanted to see more.
"We feel that additional reductions in Saudi production toward 9 million bpd will be required in order to preclude a burdensome supply situation," analysts at Jefferies Bache said in a note.
Dollar strength
The commodities complex is under pressure from a strong dollar. The dollar index is on track for its ninth straight week of gains - its longest winning streak since 1997.
A stronger dollar makes dollar-priced commodities more expensive for buyers using other currencies. "It's been a horrible week for commodities all round," Hansen said.
The slide in oil prices is said to have been arrested by a step up in tensions between Russia and the West. On Thursday, Russia warned the United States that air strikes in Syria against Islamist militants would be an act of aggression without a U.N. security mandate.
On Friday, the European Union implemented tougher sanctions against Russia because of the stand off over Ukraine, targeting some state-owned companies and individuals.
The United States will also release details later on Friday of its own new sanctions against Russia. These are expected to target Sberbank, Russia's largest bank, and further limit Russian banks' access to U.S. capital.
Ultimately, this will be detrimental to growth and future oil demand, analysts warned. "As long as the EU and Russia continue to sanction themselves, European economic growth can only go one way and that is down," said Olivier Jakob, an oil analyst at Petromatrix in Switzerland.