By Georgi Kantchev
LONDON--Oil prices extended their slump into the new week
hovering around 5 1/2 year lows as Greece's elections added to
uncertainty in Europe and there was little evidence of a change in
Saudi Arabia's oil policy.
Crude has fallen more than 55% since last June as ample supply
met tepid demand for the commodity, particularly in Europe.
The Saudi-led Organization of the Petroleum Exporting Countries
resisted cutting its output, despite the price rout, in a bid to
defend its market share against the booming U.S. shale
industry.
Brent crude for March delivery fell 1.5% to around $48 a barrel
on London's ICE Futures exchange. On the New York Mercantile
Exchange, WTI futures flirted with $45 a barrel, down $0.60 from
Friday's settlement.
Greece's radical antiausterity Syriza party won Sunday's vote
and raised the specter of uncertainty in Europe. The euro hovered
around multiyear lows exerting pressure over dollar-denominated
commodities like oil.
"Yesterday's Greek elections are likely to heighten volatility
across all asset classes," JBC Energy said in a note.
Nymex WTI crude lost 7.2% last week, settling at its lowest
value since March 11, 2009. The contract has been down for 15 of
the past 17 weeks. Brent crude, the global benchmark, lost around
2.8% last week.
Oil prices continued their rout as Saudi Arabia's new King
Salman showed little sign of changing the country's oil policy,
keeping the influential oil minister Ali al-Naimi in his job. "It
looks as if Saudi Arabia will continue to flood the market with oil
and attempt to crowd U.S. shale oil producers out of the market by
driving down prices," Commerzbank said in a note.
Analysts, therefore, expect more short-term pain for oil markets
as there is little evidence that there will be a change in supply
and demand fundamentals.
"There is still more downside risk to oil prices, notably as
U.S. oil supply continues to grows unabated in the first half of
the year and that OPEC maintains the status quo on its production
policy," said Harry Tchilinguirian, head of commodity markets
strategy at BNP Paribas. "As we transition from Q1 to Q2, that is
when the down side risk to oil prices is the greatest as demand
seasonally weakens with the end of winter and U.S. refinery
maintenance gets under way, cutting into crude oil demand."
Shale oil players could still be viable at an oil price of as
low as $30, Morgan Stanley said. But the bank cautioned that lower
prices should limit cash flow and spending and restrict access to
capital for oil producers.
The oil rig count in the U.S. declined by a further 49 last
week, according to data by Baker Hughes. The number has fallen by
165 since the beginning of January, which is the sharpest
three-week reduction since 1987, Commerzbank said.
"For a short period of time, the significantly higher oil
production starting level will prevent output from falling, yet the
oil rig count is set to dwindle further in the coming weeks, so it
is only a question of time before this is reflected in decreased
oil production," the bank said. "This indicates that prices will
recover in the second half of the year."
Nymex reformulated gasoline blendstock for February--the
benchmark gasoline contract--fell 1.4% to $1.3276 a gallon, while
ICE gas oil for February changed hands at $473 a metric ton, down
$4 from Friday's settlement.
Write to Georgi Kantchev at georgi.kantchev@wsj.com
Eric Yep contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com