Brent fell below $65 for the first time in more than five years as OPEC cut the demand forecast for its crude oil to a 12-year low. West Texas Intermediate dropped near $60 as U.S. inventories grew.

Both benchmarks are more than 40 percent below their 2014 peaks in June. OPEC reduced its projection for 2015 by about 300,000 barrels a day to 28.9 million in its monthly report today. U.S. crude inventories rose to the highest seasonal level in weekly data that started in 1982, the Energy Information Administration said.

Brent has collapsed 17 percent since Nov. 26, the day before OPEC agreed to leave its production limit unchanged at 30 million barrels a day, resisting calls from members including Venezuela to cut output to stabilize prices. The decision prompted the biggest one-day decline in more than three years.

“The sentiment is horrible right now,” said Paul Crovo, a Philadelphia-based oil analyst at PNC Capital Advisors. “People are just throwing in the towel. I don’t think anybody knows what OPEC wants to do.”

David Fuller's view

Regarding the last sentence above, what we are really talking about is Saudi Arabia’s objective, as I have frequently been discussing in recent weeks.  Their gamble is that they can knock out high-cost producers. 

Can they?

Initially, most have increased production as oil exporters try to offset their loss of revenue.  Over the medium term, the Saudis can definitely lower production, as US higher-cost shale producers stop drilling new wells and Russia has insufficient capital to repair and expand its oil production facilities.  Venezuela is in a similar position as one of the worst affected oil producers, and many others are vulnerable.

The longer term prospect is a significant and permanent loss of control by OPEC.  Technology is increasing not only oil and gas production, but also developing a number of other viable energy sources.  The era of high energy costs is fading and the long term outlook is for permanently lower energy costs in real terms.  In other words, the energy headwind has reversed into a tailwind, which should persist for a very long time.