Published By : 11 Dec 2015 | Published By : QYRESEARCH
Brent crude has gone under US$40 per barrel for the first time since the financial crisis around the globe. OPEC continues its oversupply of oil in order to drive their rivals out of the market. Meanwhile, oil prices are creating a growing fear in other industries such as industrial metals.
Bloomberg commodity index has dropped close to the lows that it had reached in 1998. The index has now fallen by two-thirds of its own peak value. This has erased the total profits earned by the resource cycle.
The latest sell-off, however, paints a different picture despite the dropping prices in oil commodity are raising alarms of another recession.
The drop is attributed mainly to the oversupply of oil and therefore points to a positive supply shock that might even boost the global economy. Demands for oil have increased by 1.8 mn barrels per day since 2014, according to Bank of America, which is the highest it has been since a decade.
Saxo Bank’s Ole Hansen said that the oil market is currently driven by fear. Investors are rattled by the inability of OPEC to perform in a stage of crisis.
He added that there is currently a stage of overproduction competition between Iran and Saudi Arabia. It is feasible for the Saudis to level with the Iranians and produce an extra 500,000 barrels per day and aim towards exhaustion. The possibilities of that happening are real.
He also said that the inventories of oil in the U.S. are already at a record high and are heading into a season where they usually rise even further.