Investing.com -- U.S. crude futures fell sharply on Friday plunging below $36 a barrel for the first time in more than seven years, after a bearish report from the International Energy Agency projected that global energy markets will remain vastly oversupplied for at least the immediate near future.
On the New York Mercantile Exchange, WTI crude for January delivery traded between $35.39 and $36.84 a barrel, before settling at $35.62, down 1.14 or 3.11% on the session. With the sharp declines, U.S. crude futures traded at $35 for the first time since February, 2009, during the depths of the Financial Crisis. Experiencing one of its worst years in recent memory, crude plummeted by more than 10% over the last five days, suffering one of its most dismal weeks in 2015.
On the Intercontinental Exchange (ICE), the sell-off in brent futures was even steeper. North Brent Sea crude for January delivery wavered between $37.37 and $39.74 a barrel, before closing at $37.90, down 1.83 or 4.62% on the day. Brent futures also fell to fresh seven-year lows on Friday. Since OPEC spooked global markets by leaving its output quota unchanged at a closely-watched meeting last week, brent crude has fallen by nearly 12%.
Meanwhile, the spread between the international and U.S. benchmarks for crude stood at $2.28, below Thursday's level of $2.98 at the close of trading.
In its December oil market report, released on Friday, the Paris-based International Energy Agency (IEA) projected global demand growth in 2016 to slow considerably, widening the gulf in the supply-demand imbalance worldwide. Next year, the IEA anticipates that global demand will grow by 1.2 million barrels per day, down from its 2015 expectations for growth of 1.8 million bpd.
At the same time, the IEA expects non-OPEC production to decrease by 600,000 bpd in 2016 as high-priced U.S. shale producers continue to get squeezed out of the market from crashing oil prices. The agency anticipates that U.S. domestic output will decline by 415,000 bpd, comprising nearly 70% of the total non-OPEC declines. By comparison, global production outside of the powerful cartel surged by an estimated 2.4 million bpd in 2014, contributing to the current supply glut.
Shortly after Thanksgiving last year, OPEC rattled the energy industry with a strategic decision to leave its production ceiling above 30 million barrels per day in an effort to defend its market share. The tactic appears to be working. Since the audacious move, market share from U.S. producers has flattened while OPEC has turned market share losses into gains, according to a fourth-quarter report from the Federal Reserve Bank of Dallas.
"These trends will likely continue," the report stated. "Overall, the OPEC strategy is one of collateral damage, where all parties are losing but some can sustain more losses than others."
On Thursday, OPEC said it pumped 31.695 million barrels of crude per day in November, an increase of 230,100 from its level a month earlier. While production in Saudi Arabia fell slightly by 25,000 bpd to 10.13 million bpd last month, it was offset by a 248,000 bpd increase in output from Iraq. OPEC supply is expected to increase exponentially next year, when Iran could ramp up production by much as 1 million bpd if a slew of economic sanctions are eased against the Gulf state.
"Saudi Arabia and its Gulf allies have the least to gain from supply cuts; they enjoy significant fiscal buffers and risk losing market share to other countries if output is trimmed," the report from the Dallas Fed added. "As a consequence, OPEC will further increase its market share, while U.S. producers experience a flattening or even a decrease in the near future."
OPEC's strategy last November triggered a prolonged battle with U.S. shale producers, flooding global markets with excess supply. As a result, crude prices have fallen sharply by more than 60% over the last year.
"OPEC's decision to scrap its official production ceiling and keep the taps open is a de facto acknowledgment of current oil market reality," the IEA said in the report. "The freewheeling OPEC policy does not - for now - alter the status quo on its supply."
Oil services firm Baker Hughes (N:BHI) said Friday that U.S. oil rigs fell by 21 to 524 for the week ending on Dec. 4. The rig count fell to its lowest level since April, 2010, providing further indications of forthcoming declines in U.S. output.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell by more than 0.30% to an intraday low of 97.32. Since reaching a 12-month high at 100.60 last week, the index is down by roughly 2.5%.
Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.