Oil prices closed at a seven-year-low Thursday and continued to drop on the overnight markets.
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LONDON-Oil tumbled to fresh lows Friday, with the US benchmark price slipping below $36 a barrel after a top energy watchdog said low prices are taking a toll on supply but that isn’t yet enough to relieve the global crude glut.
That has sent shockwaves across world equity markets because low oil prices slash profits for energy majors like BP, Total (Swiss: FP.SW – news) and Royal Dutch Shell (Xetra: R6C1.DE – news).
West Texas intermediate crude oil for January delivery dropped 40 cents, or 1.1%, to settle at $36.76 a barrel on the New York Mercantile Exchange.
“If the average price for oil remains at US$20 per barrel for 2016 and 2017, we are expecting the government’s petroleum-related revenue will fall from the current expected value of RM31.7 billion to RM22 billion in 2016 and fall further to RM9 billion in 2017”, he said.
Demand for OPEC crude in 2015 is estimated to stand at 29.4 mb/d, an increase of 0.4 mb/d over a year ago and representing a downward revision of 0.2 mb/d compared to the previous report.
“The move appears to signal a renewed determination to maximize low-priced OPEC supply and drive out high-cost non-OPEC production – regardless of price”, the IEA said.
“OPEC crude output edged 50,000 barrels per day higher in November to 31.73 million barrels per day”. Not only is the number 230,100 barrel a day higher than the earlier month; it is also the highest production rate in around three years.
Opec producers pumped more oil in November than in any month since late 2008, nearly 32 million barrels per day. As the oil price hovers around US$40/bbl, we’re seeing the full effects of the OPEC decision to maintain the production quota; adding further pressure to the fiscal budgets of oil producing countries, whilst inflicting further misery on the upstream industry as a whole.
“We see only limited upside potential until Iran starts to ramp up output assuming sanctions are eased next year”, it said.
Supply outside OPEC is expected to decline by 380,000 barrels per day (bpd) in 2016, the report said, as output falls in regions such as the United States and former Soviet Union.
Non-OPEC supply is forecast to contract by 600,000 per day next year as U.S. shale, the driver of non-OPEC growth, shifts into contraction, it said.
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Adding to the somber mood, China’s yuan fell to its lowest in 4-1/2 years on concerns about the country’s slowing economy and expectations of a USA rate hike.
