US oil prices Monday slipped below $50 a barrel for the first time in more than five years as the surging dollar and news of additional supplies extended a six-month rout.
US benchmark West Texas Intermediate for February delivery, in free fall since June, ended at $50.04 a barrel, down $2.65 or five percent. The contract got as low as $49.95 a barrel earlier in the session, its lowest level since May 1, 2009.
European benchmark Brent oil for February delivery fell $3.31 to $53.11 a barrel in London.
Monday’s slide in oil prices followed indications of rising output from key producers Russia and Iraq at a time when forecasters have trimmed their demand projections due to weak global economic growth.
The breaching of the psychologically important $50 level also came on a turbulent day for global financial markets.
US stocks fell nearly two percent, approaching the drops in European equity markets as the euro plunged to a nine-year low on revived eurozone worries.
A long rally in the greenback, which gained 11 percent last year against a basket of major currencies, has weighed on the dollar-priced oil market by making crude more expensive for buyers using weaker currencies.
Oil prices could fall further still, analysts say.
“There’s serious concern the bottom’s not in yet,” said Kyle Cooper, managing partner at IAF Advisors in Houston. “Basically everyone who’s taken a stab at the bottom has been wrong.”
“Oil prices attempted to stabilize during the last two weeks, but the fundamentals remain weak,” said Gene McGillian, broker and analyst at Tradition Energy.
“The market is trying to come to a bottom. It could be anybody’s guess, but it appears we still have more to go.”
Fawad Razaqzada, a technical analyst at Forex.com., said the drop below $50 a barrel could trigger more selling, paving the way for oil to fall as low as $45 or $40 a barrel in the coming weeks.
The retreat in prices comes on the heels of a multi-year boom in US oil production that has shaken the global petroleum market and put the US in a league with oil giants Russia and Saudi Arabia.
Other leading producers are also pumping aggressively. Iraq’s oil ministry last week released figures showing that December crude exports reached their highest since 1980.
Meanwhile, the Organization of the Petroleum Exporting Countries has consistently ruled out action despite the months-long slide in prices.
In November, the cartel met in Vienna and took no action, as key powerbrokers like Saudi Arabian oil minister Ali al-Naimi said he preferred for the market to balance itself.
In December, Naimi told a Middle East publication the group would take the same hands-off approach even if oil fell to $20 a barrel.
Meanwhile, economic growth remains uncertain in Europe and in many emerging economies, such as China and Brazil.
The International Energy Agency in December projected global crude inventories could rise by nearly 300 million barrels in the first six months of 2015. The agency also cut its demand outlook by more than 200,000 barrels a day for 2015.
Energy equities, by far the worst performing sector in the S&P 500 last year, suffered more pain Monday. Dow member Chevron fell 4.0 percent, while oil-services giant Schlumberger lost 2.6 percent.
Key US oil companies like ConocoPhillips and shale producer Continental Resources have cut their drilling budgets for 2015.
Still, analysts expect US output to continue to rise this year, owing to investments that have already been made. That will put more pressure on crude prices.
“I still think one of the primary drivers of the market is US oil production and I really don’t see US oil production growth slowing appreciably in the first quarter,” Cooper said.