KEY POINTS:
Crude oil may drop below US$30 a barrel for the first time in five years as February futures expire on the New York Mercantile Exchange today amid a glut of oil at Cushing, Oklahoma, the delivery point for the contract.
Prices plunged 6.5 per cent when January futures expired on December 19 and 7.5 per cent at December expiration on November 20, when traders with bets that prices would rise were forced to sell oil or take delivery of the crude. "It's highly likely we'll see oil break US$30 on Tuesday," said Phil Flynn, senior trader at Alaron Trading in Chicago.
"It's just going to get ugly at expiration towards the downside. The demand just isn't there, and when you have all that oil sitting around, you're not going to be in a hurry to buy."
US light crude for February delivery slid 29c to US$36.22 a barrel yesterday, having settled up 3 per cent on Friday at US$36.51.
Prices are down 60 per cent from a year ago. Oil fell 11 per cent last week.
Inventories climbed 2.5 per cent to 33 million barrels, the Energy Department said on January 14. It was the highest since April 2004, when the department began keeping records for the location.
"Expiration day, almost anything can happen," said Michael Fitzpatrick, vice-president for energy at MF Global in New York, who said prices may rise today.
October futures soared more than US$25 a barrel on September 22, as traders who sold contracts betting the price would fall were forced to buy back the same number of futures or deliver the oil.
- BLOOMBERG
