The week saw Brent Crude prices hitting their lowest levels in the past 11 years. The benchmark for other grades of oils, Brent price levels dropping is a sign of rough weather ahead for the industry.
Prices drop below 2008 levels
The price of Brent Crude tanked to hit USD 36.05 per barrel. It is the lowest it has fallen since July 2004 the earlier weakest price for the oil. At current prices, marginally up to USD 36.56, the crude is already lower than recession levels in 2008. It is stark when considered against the lofty levels of USD 115 per barrel that was the going price just a year and a half ago in June 2014. US crude levels also took a beating falling to USD 34.17 a barrel. This is lowest levels US crude has hit since 2009.
Climate change impacts demand from European markets
With much of Brent Crude, produced in the North Sea, dependent on the European market for its sales, a warmer planet doesn’t bode well. Erratic climate conditions this year have meant Europe experienced warmer than usual weather for this time of year, with mercury levels higher than normal as late as November and early December. This decline in demand for Brent Crude stems from the fact that much of it is used a heating oil.
Global oversupply doesn’t show signs of abating
Global oil manufacturers have not been able to address the issue of oversupply. This surplus has meant that prices are being driven down further, contributing to the lows Brent Crude experienced in the past few days. The US and Russian oil industries continue to flood the market, OPEC member nations continue to maintain production levels of 30 million barrels every day and Iran is set to join the fray in 2016 as a result of sanctions being lifted.
Consumers benefit as oil dependent nations, oil firms squeezed
Saudi Arabia continues to steadfastly hold on to old policies of higher production in the face of low price - a move that is harming poorer members of the OPEC. Challenged oil dependent economies are being forced to offload assets, issue debt and devalue their currencies.
The consumer for now, is benefiting from lower prices, even as oil firms are seeing their profits under pressure. Oil producing nations have, in the meantime, cut their spending to counter the impact of the lower revenues.
Some suggest that mergers are likely to be one route firms take to tide this crisis. With things as they stand today, there isn’t much to suggest prices will take a turn north, unless something is done to address the issue. Whether this will take the form of mergers, new global agreements on oil production levels, or alternative arrangements, what is fast becoming evident is that change is on the anvil for the industry.