Oil's selloff accelerated on Monday, with U.S. prices falling briefly below $50 a barrel for the first time since April 2009, on signs that supply will outstrip demand in coming months.
Ample oil production, particularly in the U.S., and tepid demand growth have sent crude oil prices plunging in recent months. Consumers are reaping the benefits, while oil-exporting nations are struggling to balance their fiscal budgets and oil companies are seeing their stock prices slump.
Production has showed no sign of slowing despite spending cutbacks by many oil companies. Prices slid Friday on reports that Russian oil output hit post-Soviet records and Iraqi oil exports were at their highest since the 1980s.
A number of U.S. producers have already responded to low prices by cutting their 2015 spending, but it could take months for supply growth to slow enough to reduce the global glut of oil, analysts say.
Monday's decline, along with a drop in the euro amid concerns about Greece's political stability, rattled broader financial markets, with global stocks tumbling and investors rushing to the safety of gold, U.S. Treasurys and other sovereign bonds.
Light, sweet oil for February delivery settled down $2.65, or 5%, at $50.04 a barrel on the New York Mercantile Exchange, after trading as low as $49.92 a barrel in intraday trading. Prices settled at the lowest level since April 28, 2009.
Brent crude, the international benchmark, slid $3.31, or 5.9%, to $53.11, the lowest level since May 1, 2009.
During the global recession in 2009, both U.S. and Brent prices dropped below $40 a barrel as global demand shrank. The recent price slide is different, analysts say, because it is more driven by unexpected supply growth than by plunging demand.
Monday's declines took both oil benchmarks below psychologically important levels for many traders. Some analysts and investors have predicted that prices will level off above $50 a barrel, following a nearly 50% slide last year. But a persistent glut in the global market is fueling further declines in the new year.
"We were eyeballing $50, low $50s, as a potential area where things would stabilize," said Lee Kayser, portfolio manager at Russell Investments in Seattle, which manages about $275 billion, including $1.4 billion invested in commodities. Mr. Kayser's funds have reduced their exposure to oil in the last six weeks, he said.
Many estimates released last autumn said a lot of U.S. shale-oil drilling would become unprofitable around $60 a barrel, Mr. Kayser noted. "We're certainly in new territory here," he said.
Saudi Arabia added to the downward pressure Monday by cutting February prices for its crude oil in the U.S., while raising them in Asia. Saudi price cuts to the U.S. in recent months have weighed on futures markets.
Saudi Arabia is the biggest exporter in the Organization of the Petroleum Exporting Countries, which has declined to cut production in recent months as prices have dropped.
Shares of energy companies in the S&P 500 tumbled alongside oil prices Monday, pushing down U.S. stock indexes.
"When it rains, it pours," said Chip Hodge, senior managing director at John Hancock Financial Services, who helps oversee about $7 billion in energy-related investments. "It just seems that you get bad news on top of bad news" for oil prices, he said.
Hedge funds and other money managers added bets that Nymex oil prices would fall and closed wagers on rising prices in the week ended Dec. 30, according to the most recent data from the U.S. Commodity Futures Trading Commission. Their aggregate position on rising oil prices fell to a three-week low.
On Sunday, Citigroup lowered its Brent forecast for 2015 to $63 from $80 a barrel, and its projection for the U.S. benchmark to $55 from $72 a barrel.
Oil traders are using options to benefit from dramatic price moves, including a potential drop to $25 a barrel, said Ray Carbone, president of Paramount Options and a Nymex floor trader.
"It's certainly a different world," he said. "We're quoting [prices] that, really, we haven't seen for a long time, since 2008-2009."
Ecuador, the smallest OPEC member, cut its 2015 fiscal budget by about 4% to $34.9 billion on Monday, due to falling oil prices. The budget assumes an average oil price of $79.70 a barrel this year.
The strength of the dollar, now at multiyear highs against other major currencies, also exacerbated the slump in oil. Oil is traded in dollars, so a strong dollar makes oil more expensive for foreign buyers.
In the U.S., the national average price of retail gasoline was $2.20 a gallon Monday, according to AAA, and 40 states had at least one station selling gas for less than $2 a gallon.
Georgi Kantchev and Benoît Faucon in London, and Mercedes Alvaro in Quito contributed to this article.
Write to Nicole Friedman at email@example.com
(END) Dow Jones Newswires