Oil Prices Slump to 11-Year Lows

Brent crude has dropped to its lowest level in more than a decade, surpassing the lows hit at the depths of the financial crisis, as the market groans under the weight of over-abundant supply.

Analysts said as both members and nonmembers of the Organization of the Petroleum Exporting Countries continue to engage in a battle for market share, oil prices are likely to continue to suffer. “Ironically, despite the warm weather, natural gas had a rally of sorts and today is higher again, but this is also probably transitional”.

The US last week exacerbated the situation when Congress reached a landmark decision to end a four-decade ban on most exports of crude oil.

It came as the global oversupply continued its onslaught and amid speculation that producers were going to keep on pumping oil regardless. Brent crude oil futures added 0.7 per cent to $36.62 after skidding to $36.04 on Monday, their lowest since July 2004, as demand for heating oil slipped on warmer-than-normal temperatures. Crude markets are also under pressure following last week’s USA interest rate hikes and on signs of growing U.S. stockpiles even as more drilling rigs are deployed.

US West Texas Intermediate (WTI) futures fell 36 cents to US$34.37 per barrel, holding near last week’s 2015 lows.

Oil reserves in the USA now remain on the highest level since 1930, a recent report said.

Oil market liquidity usually evaporates ahead of the holiday period, meaning that intra-day price moves can become exaggerated.

The downbeat sentiment has been further fuelled by the expectation that oil output will surge in Iran in 2016 once sanctions are lifted.

Brent crude prices have dropped almost 19 per cent this month, their steepest fall since the collapse of failed USA bank Lehman Brothers in October 2008. Crude is set to climb from current “very low” levels that are hurting producers, Iraqi Oil Minister Adel Abdul Mahdi said, without predicting when prices may rebound.

Many oil exporting countries will now have to amend their 2016 budgets. Another reason that has weighed on the oil prices is the increase in the number of USA oil rig counts adding to the supply glut.