OPEC cuts production estimates as oil prices touch five-year lows

Crude oil prices hit fresh five-year lows yesterday with the Organization of Petroleum Exporting Countries (OPEC) slashing estimates over how much crude it would need to produce in 2015, thanks to burgeoning supply from North America and other rising producers, USA Today reported.

OPEC cut its 2015 production projection to 28.9 million barrels a day, or about 300,000 fewer than earlier forecast, and also a 12-year low, according to Bloomberg. That was around 1.15 million barrels a day less than what the cartel pumped last month, when OPEC left unchanged its 30 million barrel daily production quota.

Benchmark West Texas Intermediate crude oil for mid-January delivery settled down 3.9 per cent to $61.36, off its lows for the day, with Brent crude slipping 3.3 per cent to $64.62.

The sell off caused energy stocks to shed value sharply cascading to the broad market, with the Dow Jones Industrial Average sinking 268 points (1.5 per cent) to 17,533, the Standard & Poor's 500 slumping 1.6 per cent to 2,026 and the NASDAQ composite declining 1.7 per cent to 4,684.

The steep decline in the prices led to fears that small exploration and production companies could go out of business if the prices fell too low, which could in turn cause turmoil among those who were lending to them - Junk-bond purchasers and smaller banks.

Meanwhile, US crude futures for January were down 4.5 per cent at $60.94 per barrel, the lowest since July 2009, Reuters reported.

Brent futures were down nearly $3 to $64 a barrel, after touching $60.63, a level not seen since 16 July, 2009.

According to the US government's Energy Information Administration, US commercial crude inventories were down 1.5 million barrels last week, as against a draw down of 2.2 million barrels projected by analysts.

US crude stockpiles stood at 380.8 million through the week ending 5 December.

Gasoline stocks also increased by 8.2 million barrels, as against analysts' expectations in a Reuters poll for a 2.5 million-barrel build.

The price of the North Sea oil benchmark was down over 40 per cent since June with new supplies of high-quality crude from North America adding to a glut of fuel in many parts of the world.

According to Gareth Lewis-Davies, strategist at BNP Paribas, there was a growing realisation that the first half of next year was going to look very weak. He added, one started to price that in now.