The growing gloom that sent oil markets reeling last week appears to be much more than a short-term phenomenon.
Oil contracts for 2018 and beyond, normally slow to follow fluctuations in more speculative short-term prices, have also collapsed amid a 10 percent dive in immediate delivery futures, reflecting a deepening pessimism over the long-term outlook for a battered industry.
U.S. crude futures are now trading at below $50 a barrel through the end of 2019, a level at which most shale drillers would struggle to turn a profit. No futures contracts – which are currently dated to 2024 – are priced above $54 a barrel. Just a few months ago many analysts and executives expected oil prices to rebound to at least $60 within a few years.
But in an unusual twist, the long-term outlook has deteriorated almost as quickly as short-term fundamentals as more and more investors come around to Goldman Sachs’ view of a downturn far longer-lasting than anyone expected.
The selloff shows traders “continue to price in that we have a very serious global oversupply situation,” said Michael Wittner, global head of oil research at French bank Société Générale. “It’s going to take a long time to work it off.”
As front-month oil futures fell $3.60 a barrel this week to settle at $33.16 a barrel on Friday, West Texas Intermediate oil futures for delivery in December 2017 fell by $2.66, or 5.6, percent to $45.02 a barrel, while the 2018 contract dropped by $2.69 a barrel, or 5.3 percent, to $48.05 a barrel – unusually steep declines that cut both to contract lows.