Oil drops below $40

At the RBI’s monetary policy review last earlier this month, Governor Raghuram Rajan said the fall in oil prices has been very beneficial for the country. In a future column, I’ll discuss the effects of the decline on the U.S. Federal Reserve’s timetable for raising interest rates and the implications of lower oil prices on producers, their financial backers and consumers.

In the meantime, Saudi Arabia is losing income, too, of course, and oil revenues account for 90% of the national budget.

During those good times, King Abdullah, who ruled from 2005 until his death in January, increased social spending as the Arab Spring uprisings toppled leaders elsewhere. “While it’s still far away, 2017 appears to be setting up for a significant recovery year“, Raymond James wrote, predicting oil could rise above $70 per barrel by then.

They said Saudi Arabia should introduce a number of measures to protect its economic performance including comprehensive energy price reforms, firm control of the public sector wage bill, greater efficiency in public sector investment, and an expansion of non-oil revenues, including by introducing a VAT and a land tax.

But U.S. crude oil production has also fallen by over 250,000 bpd since the start of June.

The oil market is also headed into a time of year when prices tend to decline for seasonal reasons. It rebounded slightly in May, hitting $69 per barrel.

Global oil markets remained bearish on Wednesday, with prices continuing to weaken following a six-week rout caused by global oversupply and falling demand from US and Asian economies.

Crude prices below $40 a barrel could further destabilize oil-producing nations, which are suffering from low revenues and currency volatility.

The United Arab Emirates, of which Abu Dhabi is the capital, is OPEC’s fifth-largest producer.

Inventories expanded by 2.62m barrels last week, the most since April, US government data showed, and crude may fall to $32 (€28) a barrel as the surplus persists, Citigroup predicted.

Within a few years, it will have overtaken Saudi oil production and will be the swing producer again. However, a look at the supply and demand dynamics suggests that black gold could slide past $40 per barrel. Do you think it will have strong effect on oil prices, taking into consideration that the market is already oversupplied by 2-2.5 million barrels per day? Many companies reported higher-than-expected production in their second-quarter earnings. The December 2006 CLZ6 contract fell $1.50 on Friday, taking its weekly loss to over 9 percent, the biggest drop in over four years.