(((: Will the oil price drop below $50 per barrel? Yes. There are two reasons for thinking that the oversupply in the global oil market that caused the Brent benchmark price to drop by almost 50 per cent between June and December this year will persist into the first half of 2015 at least. First, supplies are likely to grow. The US shale oil industry, widely seen as the most immediately vulnerable sector in the downturn, will be able to increase production despite of the financial pressures it faces. Meanwhile Saudi Arabia and other members of Opec, the oil producing countries’ group, are unlikely to make anything other than a notional cut in their production. Second, demand growth will remain as torpid as in the second half of 2014. A substantial rebound in growth in China and other emerging economies could change that but is months away at best. In those conditions, oil can be expected to fall below $50 a barrel. Over time, market forces will work. Lower prices will stimulate demand and choke off supply, especially in the US, and oil prices stand a good chance of being higher at the end of the year than at the beginning. One thing is for sure: the further prices fall, the greater the damage to investment in oil production — and hence the steeper the bounceback will be. Ed Crooks
Posted on: Thu, 01 Jan 2015 23:06:44 +0000
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