Oil prices have slumped to their lowest levels in more than 10 years, while on Thursday, another dramatic fall on China’s stock markets stoked fears of slowing demand in the world’s second biggest economy.
The sharp jump in the oil price saw it going to almost $39 a barrel on Monday. In the light of the recent oil price, the execution of a senior Muslim cleric in Saudi Arabia which prompted sectarian violence and a stand-off with Iran, seems like a lifetime ago.
Since the rally mellowed down in the afternoon session on the first day of the week in New York, oil has been tumbling and yesterday, it crashed to the latest lows for more than a decade.
The first milestone saw international benchmark Brent crude (a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide), fall below $35 for the first time since 2004 in mid-afternoon in London, while in the overnight trading sessions in the US and Asia, it eventually hit a near 12-year nadir just above $32.
According to CNN news, U.S. crude futures dropped more than 5% to just above $32 per barrel, a level that has not been seen in over a decade, before steadying slightly. This followed a drop of 6% on Wednesday. Brent crude dropped 3% to $33.
Thursday’s move came as trading in Chinese stocks was halted for the second time this week after mainland markets fell by 7%.
Now, Oil prices have dropped more than 65% since their peak 18 months ago due to a global supply glut brought about by weak demand and record inventory levels.
Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, is currently engaged in a price war with higher cost producers, including the U.S., as it tries to protect its share of the market.
And now an array of weak economic data from China is putting even more pressure on crude.
Since China is a crucial buyer in the hugely over-supplied oil market, UBS (a Swiss global financial service company) analysts wrote recently that another demand shock from China could send U.S. crude futures tumbling towards $25 a barrel.
Meanwhile, Capital founding partner John Kilduff told CNBC that prices could even break below $18 a barrel if Iranian sanctions are lifted as expected in the coming months and the country ramps up exports.
For now, the price has stabilized and Brent crude was slightly above $33 a barrel in London trade this morning – it is widely acknowledged that any major escalation of the Middle East conflict that has a tangible impact on supply could send prices spiraling higher.
Sources: CNN.com and Theweek.co.uk