Oil Market Embraces Lower-for-Longer Price View as Futures Sink

by Grant Smith Javier Blas
July 30, 2015 — 1:32 PM EDT

The global oil surplus increasingly looks like a problem that’ll take years rather than months to solve — and the market is pricing that in.

U.S. crude futures for delivery in five years have broken below levels seen during the financial crisis. With leading OPEC members pumping at a record, supplies from elsewhere holding up and Iran close to reviving exports, the market is signaling the glut will persist.

The global oversupply has already prompted oil companies to warn that the price rout will continue. Royal Dutch Shell Plc said Thursday it’s braced for a “prolonged downturn,” echoing a forecast from BP Plc Chief Executive Officer Bob Dudley that prices will stay “lower for longer.”

While investors generally focus on spot prices, forward contracts for delivery in one, two and five years are used by producers and consumers to lock in prices through hedging programs.

West Texas Intermediate contracts for five years ahead settled at $62.77 a barrel on July 27, the lowest on the New York Mercantile Exchange since February 2007. That compares with a four-month low for spot prices.

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http://www.bloomberg.com/news/articles/2015-07-30/oil-market-embraces-lower-for-longer-price-view-as-futures-sink