Oil slides further to lowest since 2009

“Oil prices fell to a seven year low this week as OPEC’s failure to agree on a target continues to reverberate through the markets”, analysts said.

The price of oil has dropped to the lowest level since the global financial crisis, and it marks the oil market’s worst losing streak for more than a year. Meanwhile, the United States benchmark West Texas Intermediate fell below US$35 a barrel early Monday.

Brent traded only 14 cents above the lows last seen during the 2008 financial crisis of $36.20 a barrel. It slid US$1.80 to US$37.93 on Friday, the lowest close since December 2008.

Crude has slumped dramatically since the OPEC oil producers’ group on December 4 opted against cutting its output levels, and there are warnings of further pain ahead as the global economy struggles. In the past six sessions, they have shed more than 13 percent each. However, the oil cartel has held production to defend its market share from the US shale gas industry which has higher production costs, and finds it harder to operate in a low oil price environment. The oversupply issue is only going to be worsened by Iran, which is gearing up for its highly-anticipated return to global oil markets after years of sanctions had blocked it. Iran has said it will boost its output by 500,000 barrels per day immediately after sanctions are lifted, possibly as early as next month.

“All new production will be earmarked for exports”, BMI Research said in a note.

“Currently, the cheapest crude oil in terms of recovery costs is produced and supplied in Iran’s central regions where production is possible at $1-$1.5 a barrel”, CEO of Iranian Central Oil Fields Company Salbali Karimi said.

On Friday, the International Energy Agency (IEA) warned that the global supply glut was likely to deepen next year and put more pressure on prices.

Oil rebounded on speculation hedge funds were buying back some of their record bearish bets after prices dropped below $35 a barrel in NY for the first time since 2009.

“The price war will likely drag on until the end of next year”, Hong Sung Ki, a commodities analyst at Samsung Futures Inc.in Seoul, said by phone.

Russian Federation and Iraq quickly reacted by saying they had no plans to curtail output and Iran said it was reserved to steeply ramp up output as soon as Western sanctions on the country were lifted because other OPEC members have been benefiting too long from its artificially curtailed supply. At times, due more to logistical bottlenecks than refinery demand, USA fell as far as US$25 a barrel below Brent, although this year the gap has averaged just US$5 a barrel.