The downward slide of oil prices continued in December. Despite opening on a positive upward note, Brent crude oil prices slid to record five-year lows.
The uncertainty about global oil production is so high, investors aren’t sure if the oil prices have seen bottom of the barrel yet. The crude oil prices slid down further in December amidst bearish indicators not just from OPEC leaders, but from other leading oil producing countries like Russia, Brazil, and Norway. Aided by consistently high production by the nations, oil prices dropped further after reports that a Nigerian dockworker strike was lifted. Nigeria is Africa’s largest oil producer.
Investors are now confident that OPEC is attempting to pump out the competition, and hence the prices of crude oil are expected to slide downwards way into the next year as well, said Tim Evans, an energy analyst with Citi Bank.
“We do have a current physical supply-demand surplus. That fits with the price theme …that prices will be lower for longer.”
Apart from American oil producers who have pumped record amounts of shale oil, countries like Russia, Brazil, and Norway, among others, have had outputs that have far exceeded projections by the International Energy Agency and Energy Information Administration. What’s even more surprising is the fact that the oil producers in these countries have managed keep crude oil production at record high, while keeping the cost of production low. By smartly cutting costs and steadily increasing drilling efficiencies, companies have managed to keep OPEC disappointed for majority of the year.
In fact, against the usual technique of cutting productions, the Organization of the Petroleum Exporting Countries or OPEC hasn’t intervened and instead adopted a wait-and-watch approach. This has forced the crude oil markets into “untested waters” for the first time since commercial oil trading has begun, during which, the markets have been under the sway of monopolies, oligopolies or a cartel, reported the Wall Street Journal.
US WTI and Brent crude oil prices were down more 1 percent, at about US$37 a barrel in Asian trade on Wednesday, reported MoneyControl. Meanwhile, the benchmark U.S. oil futures contract ended down $2.36, or 4.2%, at $54.11 a barrel on the New York Mercantile Exchange. According to Business Recorder, the global Brent crude contract ended down $1.91, or 3.1 percent, at $59.27 a barrel.
As Saudi Arabia made amply clear that the kingdom has no plans to scale back its production, even the hopes that a cold winter will drive up demand and in tow, the prices, hasn’t worked. In fact, the slide deepened in the last hour of trading, a pattern that has repeated itself in recent sessions, which involved prices gaining in the early hours, only to whittle away over the course of the day.
OPEC had recently published its World Oil Outlook. The cartel was quite hopeful that the oil prices will slowly climb upwards, before settling at $70 a barrel in 2016. However, if the current trends are any indicator, the reversal of the downward spiral may take longer than hoped. OPEC still hopes that the record low prices will drive out the competition. Additionally, these low prices are a huge incentive for sticking with crude oil instead of investing in alternative or renewable energy sources. OPEC is confident that in the near future, oil companies will desperately need huge investments after the current reserves run dry. These expeditions will be expensive and will surely force the prices to rise.
The U.S. is currently producing 9.4 million barrels of oil a day and exporting more than a third of that in the form of refined products such as gasoline and diesel, reported News Oxy. When coupled with Nigeria’s 2.2 million barrels a day, the world is currently experiencing an ample surplus of oil, which is threatening OPEC’s control over the market. It remains to be seen if 2016 will bring about a fundamental change in the market dynamics.
[Photo by Andrey Rudakov/Bloomberg/Getty Images]