SINGAPORE: Brent crude futures fell toward $86 a barrel on Friday as a firmer dollar and a well supplied oil market combined to put the benchmark on course to end October with its steepest monthly decline since 2012.
Unless the Organization of the Petroleum Exporting Countries moves to cut oil output at its meeting next month, traders say oil prices, which have dropped by a quarter since June, are likely to extend their rout.
"We are still not confident about oil prices rebounding sharply because there are no signs that OPEC countries would cut production," said Ken Hasegawa, a commodity sales manager at Newedge Japan. "Therefore, we cannot say that the decline in oil prices is over."
Brent crude for December delivery had slipped 5 cents to $86.19 a barrel by 0700 GMT. The oil benchmark has fallen more than 9 percent so far in October, on track for its biggest weekly drop since May 2012.
US crude gained 11 cents to $81.23 per barrel. Having lost 11 percent this month, it was also heading for its worst performance since May 2012.
Brent dropped to as low as $82.60 this month, its weakest since 2010, and Hasegawa said if OPEC doesn't trim output it could fall further towards $75.
There are no signs that OPEC members will cut oil production to rescue prices when they meet in Vienna on Nov. 27. OPEC secretary general Abdullah al-Badri this week added to growing signals that the group would stick to its production target of 30 million barrels per day (bpd).
OPEC should cut output by 500,000 bpd to 1 million bpd, according to Hasegawa, citing slow oil demand given weaker economies in China, Japan and Europe. A 1 million bpd cut may be enough to push Brent back to $95, he said.
Among global economies, only the United States is on the mend. Data on Thursday showed the US economy grew 3.5 percent in the third quarter, topping market estimates for a 3 percent rise.
The data underpinned the dollar near four-week highs versus a basket of currencies, making dollar-denominated commodities such as oil more expensive for buyers using other currencies.
If OPEC would keep its output at current levels, it would exceed demand for its oil by 2.8 million bpd in the second quarter of 2015, Barclays said in a report this week.
Barclays has slashed its Brent crude forecasts for the first quarter to $88 per barrel from $95 and for the second quarter to $87 from $92. But the bank doubts prices would stay below $100 for a long time.
"Given that long-term marginal costs of oil production are well over $100/barrel and that the weak prices over the past four months have already resulted in several project cancellations/postponements, it seems extremely unlikely that oil prices will remain below $100 for very long..," Barclays analysts said.
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