Yesterday was a busy day for oil traders, as global crude benchmarks dipped down towards 11-year lows before mounting something of a weak rebound, with Europe’s Brent benchmark now trading just above $38 per barrel and the U.S. West Texas Intermediate (WTI) inching above $36. It’s hard to imagine producers seeing sub-$40 prices with relief, but, as the FT reports, things looked much worse earlier in the day yesterday:
Brent crude dropped $1.60 to $36.33 a barrel on Monday, the lowest in seven years, edging closer to the December 2008 intraday low of $36.20 a barrel. If Brent falls below this, it will hit a level last seen in the middle of 2004. […]
West Texas Intermediate, the US market benchmark, sank $1.09 to $34.53 a barrel, the lowest since February 2009, before recovering to $36.34 a barrel. WTI traded at $32.40 a barrel in 2008. […]
“The year is ending on an uncomfortable note. The smell of fear is back in the air,” said David Hufton at London-based broker PVM.
It’s no great secret what’s behind this prolonged period of bargain prices: Global supply far outstrips demand, and with OPEC showing no signs of coordinating production cuts and U.S. shale producers defying predictions by staving off steep drops in output, there’s no reason to expect oil prices to mount a sustained comeback anytime in the near future. In fact, with Iraqi production at historic levels and Iran poised to mount its own oil comeback once Western sanctions are lifted early next year, the glut is likely only to get worse.
That’s good news for consumers, and for virtually every sector of the global economy (with the obvious exception of the oil industry). But for those in the business of selling crude, this 18-month decline is really starting to wreak havoc on national budgets and capital expenditures. There was some recent talk between Russia and OPEC about a meeting this month to float the idea of coordinating production, but according to a Russian oil ministry spokesperson, that no longer appears to be happening.
No one is willing to give up an inch of their share of today’s increasingly crowded market, with the end result that the market hasn’t yet found its bottom.