- Title: MARKETS-OIL Oversupply, weak demand, pushes oil prices down to five-year low
- Date: 8th December 2014
- Summary: LONDON, ENGLAND, UK (FILE) (REUTERS) MAN FILLING CAR UP WITH PETROL AT PETROL PUMP MAN WATCHING GAUGE AS HE PUTS PETROL INTO CAR
- Embargoed: 23rd December 2014 12:00
- Keywords:
- Topics: General
- Reuters ID: LVABXR70941QL39KC30XKG4U2I39
- Story Text: Brent crude oil fell more than $2 a barrel on Monday (December 8) to a new five-year low. It comes following predictions that an oversupply would keep building until next year, after the Organisation of the Petroleum Exporting Countries (OPEC) decided not to cut output.
At a meeting in November, top oil exporter Saudi Arabia resisted calls from poorer members of OPEC to cut production, driving a further slide in prices, which have lost more than 40 percent since June.
Saudi Arabia's oil minister told fellow OPEC members they must combat the U.S. shale oil boom, arguing against cutting crude output in order to depress prices and undermine the profitability of North American producers.
Although the news may be welcomed by consumers worldwide, Head of FX Strategy at CIBC, Jeremy Stretch says the flip side of a drop in prices must not be ignored.
"Well it's of course a double-edged sword. For, for those producers it's clearly a negative and for consumers and importers it's a net positive and I guess it's a question of balancing out those competing issues. I think overall it's probably actually encouraging for the global economy and I think it will benefit on the consumer side - and for those consumer-orientated economies like the U.S. and to an extent the UK, as well as those importers. So I think on balance it's probably just about positive but there are of course winners and losers," said Stretch.
Russia - with an economy heavily dependent on oil and gas exports - saw the rouble fall as the oil price tumbled.
The central bank appeared to refrain from interventions in the currency market.
Oil and gas account for around 70 percent of Russia's exports.
At 1300 GMT, the rouble was down 2.2 percent against the dollar at 53.66 and down 1.8 percent against the euro at 65.80.
Director of Private Clients Services at Charles Stanley, Jeremy Batstone-Carr, predicts the oil price will drop even further in the short term, before stabilising in the medium term between 70 and 80 dollars a barrel.
"What will the impact be on the global economy? Well, it's, I suppose supposed to be reflationary in so far as it's going to potentially boost consumer discretionary income in terms of low gasoline prices and lower heating costs and yet I can't get away from the possibility that the weakness in the oil price is not just a function of oversupply but also potentially weak demand. I think that we're very in, very clearly in a growth recession globally at the moment and in that context I am not entirely convinced that the weakness in the oil prices is unequivocally a good thing."
Brent for January was down $1.77 at $67.30 a barrel by 1445 GMT, having fallen $2.30 to $66.77 - its lowest since October 2009. U.S. crude was down $1.44 at $64.40 a barrel, after hitting a session low of $64.14.
Weaker growth in China and Europe have sent prices down a third since June. - Copyright Holder: FILE REUTERS (CAN SELL)
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