Brent North Sea crude for delivery in January slid as low as $39.81 a barrel – the lowest point since February 2009 – on a global oil supply glut, weak demand growth and a strong dollar.
Advertisement
Still, Friday’s decision by the Organization of the Petroleum Exporting Countries to maintain high production will test the ability of non-OPEC producers to handle continued price pressure.
As recently as August 2014, Brent stood at $115 a barrel, but in 16 months its price has been more than halved in response to a slowdown in China and other emerging market economies, and the end of oil sanctions against Iran. Brent crude added 21 cents to $40.94 per barrel in London after plunging $2.27 on Monday to close at $40.73.
OPEC’s inability to agree on a production ceiling meant that supply will continue to depress oil prices.
Whether you call it stubbornness or resilience, OPEC’s decision is a clear signal to the market that it would not jeopardize its market share by cutting production.
Its rival, the AA, suggested motorists should already be benefiting from that landmark price for the first time since 2009.
NEW YORK, Dec 8 Stock markets worldwide slipped on Tuesday, weighed down by weak China trade figures, but indexes were off their lows after oil prices steadied a bit after falling within reach of a seven-year nadir. Continuation of the downtrend can pull the oil prices down to ₹34 and then to ₹32.4 (December 2008 low) in the short to medium-term.
Yet, rather than closing ranks, OPEC is finding that an intensifying battle for market share, worsened by deep regional differences between Saudi Arabia and Iran, is driving it further apart. Among the fallers were Britain’s BP, which was down 1.5 percent, and France’s Total, which dropped 1.8 percent.
A note by Goldman Sachs said: “The rising probability that markets may need to adjust through “operational stress”, when surpluses breach capacity, leaves risks to our forecast as skewed to the downside in coming months, with cash costs near $20 per barrel”.
In yet another indication of fierce market battles, trading sources said Saudi Arabia was shipping more crude oil to Asia over the last two months of the year. The S&P 500 fell 14.62 points, or 0.7 percent, to 2,077.07.
Traders are watching whether the Fed will raise interest rates, a move that will boost the dollar.
At the same time crude imports are rising, the preliminary customs figures show China’s exports of refined products surged to 4.1 million tonnes in November, up 68 percent year-on-year.
Advertisement
The psychological impact of sub-$40 a barrel Brent could also prompt speculators, traders and money managers to start scaling back on investments in the sector.
