Oil capped the biggest annual decline since the 2008 global financial crisis as U.S. producers and the Organization of Petroleum Exporting Countries ceded no ground in their battle for market share amid a supply glut.
The U.S. benchmark ended at a five-year low Wednesday, capping a 46 percent drop in 2014, as stockpiles of crude oil and gasoline reached seasonal record highs and as OPEC produced more than its quota in December for a seventh month. Goldman Sachs Group Inc. said it expects a "far lower" new normal for prices and Barclays said oil has "further downside risk."
Oil's slump has roiled markets from the Russian ruble to the Nigerian naira and squeezed government budgets in producing nations including Venezuela and Ecuador. It's also boosted China's emergency crude reserves and helped shrink fuel subsidies in India and Indonesia. U.S. drivers may save as much as $75 billion at gasoline pumps next year, AAA said. Low prices have prompted producers including ConocoPhillips and Continental Resources Inc. to plan spending cuts for 2015.
"The feature of the year is clearly the increase in production in North America," said Michael Hiley, head of energy OTC at LPS Partners Inc. in New York. "It's finally got to the tipping point where increases in production overwhelm demand. It's having a very negative impact on the Russian economy as well as Iran, Venezuela. But clearly it's a long-term good for the world economy."
West Texas Intermediate for February delivery dropped 85 cents, or 1.6 percent, to close at $53.27 a barrel on the New York Mercantile Exchange, the lowest since May 2009. Volume for all futures traded was 36 percent below the 100-day average.
Brent for February settlement fell 57 cents, or 1 percent, to $57.33 a barrel on the London-based ICE Futures Europe exchange, also the lowest since May 2009. Prices decreased 48 percent this year.
U.S. crude stockpiles declined 1.75 million barrels in the week ended Dec. 26 to 385.5 million, said the Energy Information Administration, the Energy Department's statistical arm. Crude production accelerated to 9.14 million barrels a day through Dec. 12, the fastest rate in weekly data that started in January 1983, EIA data show. It was 9.12 million last week.
"The real story is the shale revolution and the fact that Saudi Arabia, the 500-pound gorilla, refuses to be the one to make the cut to support prices," said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors. "Everyone is fighting for market share here."
"In the near term, and by that I mean 30 to 60 days, crude will be under a lot of pressure," Dan Heckman, Kansas City, Mo.-based national investment consultant at U.S. Bank Wealth Management, said by phone. "It will take time to work off this inventory glut."