Brent crude oil price dived below $40 per barrel mark on Tuesday with OPEC’s decision to not declare an official quota last Friday along with the glut of global oil supply retaining a bearish sentiment in the market.
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Brent crude fell 2.1 percent to $39.88 a barrel at 1:45 p.m. London time Tuesday, the lowest since February 20, 2009.
Francisco Blanch, head of Commodities Research at Merrill Lynch, said Tuesday that a strong US dollar and restrained global growth could create downward near-term pressures on commodity prices.
US crude was trading at $37.82 a barrel, up just 17 cents from its last settlement and close to the 2015 and 7-year lows of the previous session.
Oil prices rose slightly on Wednesday on signs that demand from Asia could improve and on an unexpected drop in crude oil storage in the United States, but many investors still expected a fall to below 2008 lows due to a mounting global supply glut.
WTI for January delivery sank 25 cents, or 0.7 percent, to $37.40 a barrel on the New York Mercantile Exchange after touching $36.64. One of the main reasons for the plunge in price is the current oversupply of oil worldwide, with Saudi Arabia leading the way in overproduction in order to protect its share of the market, and drive out USA competitors.
American motorists are feeling the benefit at the pump, with the average price of a gallon of gas also falling to its lowest level since 2009. OPEC failed to issue any concrete statement on output even though markets heavily favor the supply side. Most of the market “doesn’t have any ceiling” on production, Iraqi Oil Minister Adel Abdul Mahdi told reporters after the meeting in Vienna. Currently, the market is being oversupplied by about 2 million barrels per day.
On the demand side, China’s appetite for cheap oil was helping to support prices as the government looks to build up its strategic reserves.
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The big pullback in petroleum-linked stocks came after OPEC’s decision not to cut output dimmed the odds of any quick recovery in oil prices. The country imported 27.3 million metric tons of crude, a 3.8 percent rebound from a five-month low in October.
