Oil prices fell to their lowest level in 12 years, with futures of West Texas intermediate crude for February delivery settling at $31.41 a barrel, down 5.3 percent. Oil futures, which lost 30 percent last year, have declined every day of 2016. Brent oil, the main international benchmark, lost 6.5 percent and closed at $31.55 a barrel.

Last year a broad reassessment occurred in commodities, as the global economy slowed and demand from emerging markets like China, India and Brazil waned. The slump in oil prices picked up momentum last week on renewed concerns about the health of China’s economy, which led to a rout in global markets.

The drop in commodities is being felt throughout the energy sector and beyond. Saudi Arabia, for instance, said last week that it was considering selling shares in Saudi Aramco, its state-run oil company. Arch Coal, one of the biggest coal producers in the United States, said Monday that it had filed for bankruptcy protection to cut its debt.

Russia’s main stock indexes also plummeted Monday on their first day of trading after a long holiday, as falling oil prices also cast a pall over the country’s energy-dependent economy. Oil and other commodities like natural gas and steel, which make up the bulk of Russian exports, have fallen sharply on fears of a slowing Chinese economy.

"Every signal that the market is getting now suggests that we are going to continue to have an oil glut for some time to come,” said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University. "Iran is about to re-enter the market, demand numbers and economic indicators look relatively weak, U.S. supply is holding up in a low-price environment much better than people thought and global inventories are growing.”

In that situation, he said, even geopolitical tensions between Saudi Arabia and Iran, which generally would have frightened energy markets, have not had an impact on the markets’ perception of risk. In fact, the sharp increase in tensions between the regional powers makes it less likely they will agree to stabilize oil markets in the Organization of the Petroleum Exporting Countries. "In that world, there is almost every indication that you want to be bearish,” Mr. Bordoff said.

Many analysts expect more declines before prices recover. Goldman Sachs, which had predicted that oil might reach $200 a barrel during a "super-spike” before the 2008 financial crisis, forecast last year that prices might drop as low as $20 a barrel in the current downward cycle.

Morgan Stanley also argued on Monday that $20 oil was possible if the United States dollar made rapid gains. Analysts at Barclays cut their outlook for oil and copper prices. They still predicted oil would rebound in the second half of 2016, but set an average price of $37 a barrel this year, down from previous forecasts of $56 to $60.

"Recent price declines for major commodities are now greater than in any crisis of the past 30 years and speculative positioning much more negative than it was even in the depths of the financial crisis,” according to a research note by Barclays. "That suggests that although the price outlook is weaker than it was previously, the road ahead could be a very bumpy one.”

At the same time, the drop in oil is pushing down prices at the gas pump. The average retail price fell to $1.96 a gallon, according to the AAA motor club, down from $2.14 a gallon a year ago.

Oil’s decline in the last year was caused in part by the decision by Saudi Arabia, the world’s biggest producer, not to reduce production. This fundamental change in oil market discipline was meant to force out high-cost energy producers, particularly shale producers in the United States, by driving down prices.

But the decision backfired on Saudi Arabia and other producers, which are now confronting a much higher burden of financing their oil-dependent economies.

Among a raft of new economic measures, the Saudi government is considering selling its energy assets. Saudi Aramco, the state-owned oil company, confirmed last week that it was studying selling shares to the public in its upstream business or its refining and petrochemical companies.

The prospect of opening Aramco to investors was first made public by Deputy Crown Prince Mohammad bin Salman, 30, in an interview with the magazine The Economist.

According to a statement by Aramco last week, the company’s review is part of the kingdom’s economic reform program.

Separately, coal mining companies have been struggling as demand declines. The drop in energy prices and stricter environmental regulations have made natural gas a much more attractive competitor to coal in the United States.

Arch Coal, which bought the International Coal Group for $3.4 billion at the peak of the market, said Monday that it would seek Chapter 11 protection to reduce $4.5 billion of debt. The decision is not a big surprise after Arch Coal delayed an interest payment due in December.

The company said it expected its mining operations and shipments to continue. It said it had an agreement with more than 40 percent of its first-lien lenders for its debt-cutting plan and enough cash to run operations through the process.

John W. Eaves, the company’s chairman and chief executive, said in a statement that a court-supervised process was the best way to strengthen its balance sheet.

"With oil prices collapsing, renewables on the rise and coal companies going bankrupt, we are at a key inflection point in the energy transition,” said Michael Webber, deputy director of the Energy Institute at the University of Texas at Austin. "Inflection points produce a lot of uncertainty and volatility for investors.”

 

(NYT)