Oil tumbled to the lowest level in more than five years on speculation a global supply glut that’s driven crude into a bear market will continue through the first half of 2015. West Texas Intermediate fell 2.1 percent while Brent slipped 2.6 percent, reversing early gains spurred by an escalating conflict in Libya. Fires have been extinguished at three of six tanks at Es Sider, Libya’s largest oil port, which were set ablaze after an attack by militants, said National Oil Corp. spokesman Mohamed Elharari. Crude also fell as the dollar climbed to a two-year high against the euro, reducing the appeal of raw materials as a store of value.

Futures plunged 46 percent this year, set for the biggest annual drop since 2008, as the Organization of Petroleum Exporting Countries resisted supply cuts to defend market share in response to the highest U.S. output in three decades. Trading was below average amid Christmas and New Year holidays.

“We’re looking at a significant supply-demand surplus through the first half of 2015,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said by phone. “The problems in Libya and any reduction in the growth of U.S. production will only help limit the surplus, but it’s not going away anytime soon.”

David Fuller's view

The continued weakness of Brent and WTI crude oil is clearly positive for oil importing countries and their consumers.  However, it will also be disruptive for many oil producers in 2015, not least Russia and Venezuela, and there may be some debt defaults.   

Technically and fundamentally, I think crude oil is cheap but there is still no clear evidence that selling pressure is dissipating, despite some temporary steadying in the two previous weeks.  A clear upward dynamic in excess of $5 remains necessary to indicate short covering and the beginning of a better rally than we have seen since the June highs just above $115 for Brent.