• Friday, July 12, 2024
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BusinessDay

Oil price still crashing

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Tuesday saw global oil prices maintain a downward trend, crashing to $48 per barrel, well below a record high of $115 a barrel just less than a year ago. Prices in the global oil market on Tuesday slumped for a fourth straight session, spooking worries about a supply glut pressured crude prices, which have fallen to the lowest since 2009.

Tuesday saw global oil prices maintain a downward trend, crashing to $48 per barrel, well below a record high of $115 a barrel just less than a year ago.

According to Phillip Streible, senior market strategist at RJO Futures in Chicago “I think the likelihood of seeing $46 to $45 is quite likely. People, I think, are further understanding that the U.S. is becoming a powerhouse in creating crude oil and that’s not going to change anytime soon.”

The sell-off in oil began six months ago on concerns of an oversupply of high quality U.S. shale crude. It accelerated after a meeting of the Organization of Petroleum Exporting Countries in November, when Saudi Arabia ruled out production cuts as a means of boosting prices.

Saudi Arabia’s King Abdullah said in a speech read for him on Tuesday  that the country would deal with the challenge posed by lower oil prices “with a firm will,” giving no signs the number one crude exporter will cut supplies.

Crude oil prices have plunged more than 55 percent since June, when benchmark Brent traded above $115 a barrel and U.S. crude above $107.

On Monday Citigroup cut its forecast for 2015 global oil prices as a result of high supplies. Citigroup analyst Ed Morse wrote in the report that the first half of this year will bring “a step-up in oversupply, more volatility, and turmoil.

Analysts say oil prices will bottom out and start to rise again – part of the so-called commodity super cycle – once some producers scale back production to adjust to falling prices and major manufacturing centres begin to feel the economic benefits of cheaper energy and again start using more.

Morse reduced his forecast for global crude to an average of $63 a barrel for 2015, down from $80 a barrel.

This oil match is bringing winners and losers, but the game is far from over and predicting how it will end is proving to be a real sport. For now, the winners are China, consumers in the United States, and airlines, although the likely cost savings have not yet translated into ticket price drops.

Russia sits high on the list of losers as its currency; the rubble continues to fall even faster than the oil prices. Financial markets around the world have taken a hit as well; as should be expected, investors are sceptical.

Nigeria and Venezuela, which are heavily oil dependent, have faced increased economic uncertainties also. OPEC, itself, can no longer rake in significant revenues at the current price.

The low oil prices have led to sharply lower fuel prices for shippers, airlines and drivers. Morse equated the drop in global oil prices to a $1.6 trillion stimulus package for the world economy.

On Monday, Saudi Arabia announcement for a further oil price discounts for its European and U.S. buyers added to the bearish state of oil markets already staggering from Russian output at post-Soviet-era highs and Iraqi oil shipments near 35-year highs.

Deutsche Bank and the International Monetary Fund say Libya would need $184/barrel to balance its budget; Nigeria would need $123/b to balance its spending plans.

JOSEPHINE OKOJIE