Oil heads for $36 a barrel amid world glut fears

With oil dropping to the lowest in more than six years after the Organization of Petroleum Exporting Countries meeting on Friday, further downgrades are probably on the way. “The market will clear eventually, but right now it still seems like we have a glut of oil”.

Brent crude oil, one of several kinds of oil on the world market, dropped below $40 a barrel on Tuesday.

The euro rate climbs to 76.14 rubles during the trading session on the Moscow Exchange for the first time since September 15.

In the words of former BP chairman, Lord Browne, betting on the oil markets, now more than ever, “is a foolish business to be in”.

Oil prices have more than halved over the past 18 months to a fraction of what most OPEC members need to balance their budgets.

That could provide some support to prices, if it emulates data, released Tuesday, from the American Petroleum Institute that showed a 1.9 million barrel draw on U.S. oil stocks after months of buildup. As Brent prices tumble by nearly $2 a barrel to $42.90, traders try to make sense of the fractious OPEC gathering in Vienna, which ended with no production target and no guidance on policy, as it looks more than likely that prices are poised to test lows last seen at the depths of the financial crisis in early 2009.

China’s crude oil imports for the first 11 months of the year rose 8,7% to 6,61 million barrels per day while its November crude imports grew 7,6% from the same month a year ago. Russia, which depends on oil sales for roughly half its federal budget, has seen falling oil prices compound the effects of Western economic sanctions imposed for its provocative behavior in Ukraine.

As per latest OPEC data, its new reference basket of 12 crude oils closed at $38.08 a barrel on Friday.

Sonia: There is this ballooning glut between half a million to two million barrels a day of crude, much higher demand, do you think that situation could get worse in the near-term, what are you factoring in? Iron ore’s 10-year low was accompanied by declines in zinc, lead and nickel, leaving mining companies to bear the brunt of a renewed sell-off in equity markets. COMEX gold futures contract was down 0.30% or $3.20 to $1,072.00 an ounce, while spot gold was 0.19% or $2.04 higher at $1,073.78 an ounce.

On the upside, this record cushion should protect the world from adverse supply shocks, as geopolitical risks still loom large in Iraq and Syria. This surplus supply has increased the downward pressure on oil prices, and retained a bearish outlook in the market.

If prices of oil continue to decline a number of infrastructure projects may be affected, also all government expenditure which rely on oil revenue for funding may be cut to suit the times.