[ 2016-01-06 ]

Oil price falls below $35 a barrel to fresh 11-year low
Oil has continued its rollercoaster ride into the
new year, with Brent crude falling below $35 a
barrel for the first time in 11 years.

Brent crude sank by 4.2% to $34.88 a barrel,
surpassing its late December fall, and taking the
price to its lowest level since 1 July 2004.

The price of US crude dropped 3.3% to $34.77 a
barrel.

The sharp falls followed a short-lived rally on
Monday after Saudi Arabia broke diplomatic ties
with Iran.

Analysts said fears over the worsening relations
between Saudi Arabia and Iran, which had initially
raised concerns about possible supply disruptions
and boosted the oil price, had now been overtaken
by pessimism over oil cartel Opec ever agreeing on
a production ceiling.

How low?

Historically, Opec has cut production to support
prices. But led by Saudi Arabia, by far the
group’s most powerful member, the group has
resolutely refused to trim supply this time.

Rising tensions over Saudi Arabia’s execution of
Shia cleric Sheikh Nimr al-Nimr mean that any
agreement is now deemed less likely than ever.

“With relations between Opec kingpins Saudi
Arabia and Iran at a historic low point, it
solidifies an already unlikely scenario that Opec
might cut output,” said Barclays analyst Alia
Moubayed.

Since mid-2014, oil prices have slumped 70% mainly
because of oversupply. This in turn is largely due
to US shale oil flooding the market.

At the same time, demand has fallen because of a
slowdown in economic growth in China and Europe.

Iranian oil exports are also expected to rise
later this year once Western sanctions against
Tehran for its nuclear programme are lifted,
increasing the oversupply of oil.

Opec is hoping that refusing to cut production
will help to drive US shale producers out of
business, believing that they will fall victim to
lower prices long before its own members, and has
forecast that prices will recover to $70 a barrel
by 2020.

Goldman Sachs has warned that oil prices could go
as low a $20 a barrel, but most analysts are
expecting the price to stabilise in the second
half of the year as supply from non-Opec nations
slows and demand remains relatively robust.

Source - BBC

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