Front month Brent futures fell to their lowest level in five and a half years yesterday as selling pressure dominated market activity. Prices closed lower for the seventh straight session on Monday, losing 5.8% from the previous session’s close as the global benchmark ended the day at $53.11/bbl. Activity this morning has since seen further downward pressure in the crude oil market as the general tone of market pessimism which has seen investors pull out of risk assets in recent sessions continues to dominate trading activity. Front month Brent futures attempted to push past $53.60/bbl during overnight trading but prices have since slipped back towards $52/bbl.
Market participants were given a glimmer of hope as the latest developments in Saudi Arabia offered the potential for some improvement in the fundamental outlook. The gulf state, in a move that could indicate a possible price floor has been reached, raised the price of its February oil sales to Asia, narrowing the discount of its Arab Light grade to $1.40/bbl, less than the regional average compared to a $2/bbl discount for January. The move could be seen as an attempt to slow down the recent precipitous declines in prices while putting a dampener on their commitment to preserve market share.
In wider industry news the latest rig count by Baker Hughes indicates the coming of a significant slowdown in exploration and output. The total rig count, both onshore and offshore, fell by 93 during the three months till December 26th as drillers either shutdown or idled rigs. The closures show no signs of slowing down with 17 rigs shuttered just last week as operators attempt to alleviate pressure from lower crude prices with the closure of excess or high costs capacity with many embarking on aggressive cost cutting programmes. After a 46% drop in front month WTI prices in 2014 investment is expected to slow with the latest rig count data a harbinger for what is likely to be a difficult year for drillers and operators.