Opec bid to kill off US shale sends oil price down to near seven-year low

[nihal123Top contributor]

The latest attempt by Saudi Arabia to kill off the threat from US shale oil has sent oil prices slumping to their lowest level since the depths of the global recession almost seven years ago.

A barrel of benchmark Brent crude was changing hands at below $42 a barrel after the oil cartel Opec - heavily influenced by Saudi Arabia – decided late last week to continue flooding the global market with cheap oil.

With global demand weak, traders fear that Opec’s refusal to cut production despite the financial pain it is causing its members’ economies will lead to an ever-deeper world glut of crude.

Brent stood at $43 a barrel when business began in the City on Monday and fell steadily before receiving a fresh downward push when trading opened in New York.

Brent crude, from 2005-2015 Facebook Twitter Pinterest
Brent crude, from 2005-2015 Photograph: Thomson Reuters
The price fall, if sustained, will lead to lower inflation in oil-consuming nations through the knock-on effects on petrol, diesel, domestic energy prices and the cost of running businesses.

Lower crude prices may also delay or limit increases in interest rates. The Bank of England has already accepted that inflation – which currently stands at -0.1% – has stayed lower for longer this year than it anticipated.

Analysts believe the current slide in oil prices has come too late to persuade the US Federal Reserve, America’s central bank, to delay an increase in the cost of borrowing later this month, adding that the prospect of the first tightening of policy from the Fed since 2006 was an added factor in crude’s decline.

The prospect of higher US interest rates has led to the value of the US dollar rising on foreign exchanges; since oil is priced in dollars that has led to a fall in the cost of crude.

Analysts at Barclays said the lack of an Opec production target in its written announcement was a sign of discord.

“Past communiques have at least included statements to adhere, strictly adhere, or maintain output in line with the production target. This one glaringly did not,” they said.

Saudi Arabia needs oil prices of $100 a barrel to balance its budget, but as the world’s biggest exporter of crude it is gambling that the low price will knock out the threat posed by so-called unconventional supplies, such as shale.

Saudi Aramco chief executive Amin Nasser said at a conference in Doha on Monday that he hoped to see oil prices adjust at the beginning of next year as unconventional oil supplies start to decline.

In a sign that US production could dip, Baker Hughes’ November data showed US rig count numbers down month-by-month by 31 to 760 rigs.

http://www.theguardian.com/business/2015/dec/07/opec-plan-kill-us-shale-oil-price-down-seven-year-low

[කිත්සිරි ද සිල්වාTop contributor]

Thanks Nihal.

I am sure, this would further compound the issue.

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