Oil prices hit 11-year low as global supply balloons

20 Jan 2016 | Author: | No comments yet »

Brent Oil Prices Dip to Lowest in 11 Years.

LONDON — Brent crude prices hit their lowest in over 11 years on Monday, hounded by a relentless rise in global supply that looks set to outpace demand again next year.Oil prices hit 11-year lows in Asia and Europe on Monday, as a glut of crude on world markets and the recent global climate accord continue to depress fossil-fuel prices.

Oil production is running close to record highs and, with more barrels poised to enter the market from the likes of Iran, the United States and Libya, the price of crude is set for its largest monthly percentage decline in seven years. Moscow time, Brent oil futures dropped 1.21 percent to $36.21 per barrel, earlier sliding to $36.18, less than the 2004 low of $36.2 per barrel. “The market is quite weak right now and for Brent to fall to $35 a barrel is very possible in the near term but soon bargain-hunting by some hedge-fund managers will likely kick in to lift prices,” Daniel Ang, a Phillip Futures energy analyst told the Wall Street Journal Monday. While consumers have enjoyed lower fuel prices, producers have cut spending and thousands of jobs and the world’s richest exporters have been forced to revalue their currencies, sell off assets and even issue debt for the first time in years as they struggle to repair the holes in their finances. Amrita Sen, chief oil market analyst, Energy Aspects this could be because of very poor heating demand. “Across the world we have had a warm start to the winter and there have been hardly any heating days in the US,” adding that even Europe is likely to be as warm as it has been. Russia’s 2016 budget bill, signed by President Vladimir Putin on Dec.15, projected the average price of Russian Urals oil at $50 per barrel in the next year.

OPEC, led by Saudi Arabia, will stick with its year-old policy of compensating for lower prices with higher production, and shows no signs of wavering, even though every dollar lower in the oil price brings fresh pain to its poorer members. That meeting was quickly followed by the United Nations climate accord in Paris, which aims to reduce the world’s reliance on oil and other carbon-emitting fuels. Brent futures fell by about 2 per cent to as low as US$36.05 per barrel on Monday, their weakest since July 2004, and were down 41 cents at US$36.47 at 1115 GMT. The demand so far especially from Asia has been good but now it may see a hit going forward, and with supply taking time to adjust, crude has come under renewed pressure, says Sen.

Analysts say that crude oil prices are likely to remain under pressure in the spring, when refineries typically shut down for maintenance, weakening demand. Last week Saudi Arabia — oil cartel Opec’s top exporter — as well as Kuwait and Bahrain raised interest rates as they scrambled to protect their currencies. While few analysts had expected OPEC to decide to cut production when the group met in Vienna this month, the signals from the meeting appeared to show that the cartel, which accounts for about 30 percent of world oil production, was not even close to coming up with a plan to try to manage the market. “Even compared to the low expectations, the meeting sent out negative signals,” Mr. On Monday Iraq devalued its dinar currency to offset the impact of lower oil, while Azerbaijan ditched its currency peg after burning through more than half its foreign exchange reserves this year.

However, supplies are responding and non-OPEC has come off quite sharply 2.2 million barrels per day in January to just 300,000 in November, OPEC also has some planned maintenance work which could make a dent in the supply going forward but not until February. Mallinson said. “There was no unity and nothing that looked like the basis for more coherence next year.” While disgruntled OPEC members like Venezuela muttered about the “catastrophe” caused by rock-bottom oil revenues, Saudi Arabia, Iraq and other gulf countries are expected to continue to produce at or near record levels, and new supplies are expected from Iran, assuming international sanctions are lifted next year. For instance, the International Energy Agency, the Paris-based monitoring organization, forecasts that supplies from outside of OPEC will decline next year. US oil supply will make its way to global markets in the coming year after the government voted to lift a 40-year-old restriction on crude exports, but it will face stiff competition for market share.

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