Oil drops below $35 a barrel, fresh momentum fuelled by US Fed rate hike

By Ramsey Al-Rikabi

(Bloomberg) — Oil traded below $35 a barrel and headed for a third weekly decline amid a worsening U.S. supply glut and the first interest rate increase by the Federal Reserve in almost a decade.

Futures held losses in New York after closing Thursday at the lowest in almost seven years, and were down 2.3 percent this week. Crude stockpiles surged to 490.7 million barrels, the highest for this time of year since 1930, according to the Energy Information Administration. Goldman Sachs Group Inc. warned of “high risks” that prices may sink further as supplies swell. The Fed decision bolstered the dollar, diminishing the investment appeal of commodities.

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Oil is trading near levels last seen during the global financial crisis on signs the surplus will be exacerbated. The Organization of Petroleum Exporting Countries abandoned output limits at a Dec. 4 meeting while the White House announced its support Wednesday for a deal reached by congressional leaders that would end the nation’s 40-year restrictions on crude exports.

Read also: Oil falls below $40, fresh seven year low after OPEC fails to cut supply

“The major driver this week has been U.S. dollar strength against a backdrop of ongoing refusal to respond rationally to the current market surplus on the supply side,” Michael McCarthy, a chief markets strategist at CMC Markets in Sydney.

West Texas Intermediate for January delivery was at $34.80 a barrel on the New York Mercantile Exchange, down 15 cents, at 1 p.m. in Hong Kong. Prices have dropped 35 percent this year, set for a second annual decrease.

Read also: Goldman Sachs downgrades oil price forecast: $20 a barrel now real prospect

Brent, the European benchmark crude, closed Thursday at a premium of 79 cents a barrel to WTI for February, the least in 11 months. The spread has narrowed amid speculation the U.S. plan to allow domestic oil to be shipped overseas may ease the nation’s oversupply. Crude inventories have expanded to 130 million barrels above the five-year seasonal average, EIA data showed Wednesday.

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