Oil falls below $53 a barrel as bloodbath spreads

The price of black gold doesn't look to have reached its nadir yet.

by Rachel Savage
Last Updated: 12 Jan 2015

Many people like to think of the New Year as a new start, but for oil prices it’s the same sea of red that ended 2014. A barrel of Brent Crude now costs less than $53, after plumetting 6% yesterday, while West Texas Intermediate is below $50 - the lowest prices since April 2009.

The black stuff lost almost half its value in 2014, the biggest drop since the financial crisis hit in 2008. And it shows no sign of bottoming out just yet, with concerns about a global supply glut and weak demand going nowhere.

A lot of the new oil that came on tap last year was from US fracking, much of which may now be uneconomical at these prices. Anarchy in Libya, meanwhile, has hit the industry there. But record pumping in Russia, the highest Iraqi exports since 1980 (despite IS conquering a number of oil fields) and Saudi Arabia’s refusal to let the Opec cartel cut production has fuelled fears of an oversupply.

Meanwhile, a potential Chinese economic slowdown and fears of a Grexit (Greek exit from the Euro, duh) are thought to be weighing on demand. The dollar has also been strengthening of late as the Federal Reserve moves closer to raising interest rates and economies outside the US look weak. That makes commodities priced in dollars, including a lot of oil, more expensive in the short-term, even as prices fall.

‘No one is willing to cut supplies while the strong dollar is playing a negative role with uncertainties growing in Europe. Even if prices fall below $40, the market may not be too surprised,’ Will Yun, an analyst at Hyundai Futures in South Korea, told Bloomberg.

The oil price rout, combined with those Eurozone fears, whacked markets yesterday and today. The FTSE 100 fell 2% to 6417.16 as commodity producers took a pummelling, and was down another 0.72% this morning, while French, German and Italian markets fell between 3 and 5% and US indices were down almost 2% yesterday.

Cheaper oil is of course welcome news for consumers and energy-intensive companies - US car makers have reported increased sales of gas guzzlers, for example. But with producer economies like Russia and Venezuela in turmoil, as well as the North Sea and US shale industries, more volatility in such a big slice of the global economy may not be such a good thing, especially as Europe wobbles.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Subscribe

Get your essential reading delivered. Subscribe to Management Today