Rise in supply drops oil prices to 11-year low, $20 in sight

  • Reuters, London
  • Updated: Dec 22, 2015 02:28 IST
Oil prices hit an 11-year low on December 21, with Goldman Sachs saying a drop to as low as $20 was possible for supply to adjust to demand. (Ravi Kumar/HT Photo)

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.

Brent futures fell by about 2% to $36.05 per barrel, the weakest since July 2004. Prices have dropped by nearly 19% this month, their steepest fall since the collapse of failed US bank Lehman Brothers in October 2008.

US crude futures fell 31 cents to $34.42 a barrel, lowest since 2009.

Oil production is running close to record highs and, with more barrels poised to enter the market from the likes of Iran, the US and Libya, the price of crude is set for its largest monthly percentage decline in seven years.

Investment bank Goldman Sachs believes it could take a drop to as little as $20 a barrel for supply to adjust to demand.

While consumers have enjoyed lower fuel prices, the world’s richest oil 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 their finances.

OPEC, led by Saudi Arabia, is likely to stick to its year-old policy of compensating for lower prices with higher production, and shows no signs of wavering, even though lower prices are painful to its poorer members.

“With OPEC not in any mood to cut production ... it does mean you are not going to get any rebalancing any time soon,” Energy Aspects chief oil analyst Amrita Sen said. “Long-term of course, the lower prices are today, the rebalancing will become even steeper, because of the capex cutbacks ... but you’re not going to see that until end-2016.”

“Really, I wouldn’t like to be in the shoes of an oil exporter getting into 2016. It’s not exactly looking as if there is light at the end of the tunnel any time soon,” Saxo Bank senior manager Ole Hansen said.

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