- January 24, 2016
- Posted by: admin
- Category: Featured Posts, Market Update
Stock markets have sunk with the oil price as the cost of a barrel of crude plunged to an 11 year low.
The bottom price was $36.35 for Brent crude and $34.30 for Wes Texas Intermediate.
In June 2014, the price was around $115 a barrel.
Such low oil prices have not been seen since 2004.
Few are expecting the price to increase as drivers in some parts of the UK have seen fuel prices on garage forecourts fall to less than £1 a litre.
The main problem is in-fighting between OPEC countries which are pumping oil out of the ground despite a glut on the market.
OPEC still pumping
The OPEC members –mainly the wealthy Middle Eastern nations such as Saudi Arabia, Kuwait and Oman –are concerned they will lose market share to non-OPEC countries such as Russia and countries returning to the market after a long absence, such as Iran and Iraq.
Their hope is that if they keep the prices down, non OPEC countries will not be able to afford to compete, so will drop production eventually pushing prices back up.
The OPEC nations can afford to sit and do this because they have bulked up huge reserves of foreign currency in the fat years that will see them through the coming leaner season.
Demand is likely to fall even further as much of Europe and North America almost basks in unseasonably warm weather, keeping families and businesses from turning up the heating.
This warm spell is expected to continue into the first week or two of January 2016.
Lower growth expected
OPEC has indicated that oil prices are not expected to breach the $100 a barrel mark for at least decade.
“Governments of oil producers are going to have to be more careful about how they spend and keep a tighter rein on their cheque books,” said a spokesman for Capital Economics, a financial research firm.
“Another year like the last will see an impact on their growth. We’re also expecting to see interest rates rise in line with those of the US Federal Reserve.
“Expected economic growth in the Middle East is likely to be less than 2% in 2016, which is the lowest since the turn of the century.”
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