Oil prices see dramatic fall and settle below $30, a new low that hasn't been reached in over 12 years.
The drop in prices were fueled by a weak demand from China, the world's second largest consumer, and what can be only described as a continued supply glut. The slide has cut fuel prices by a fifth since the beginning of the year and compared to mid 2014, it has fallen 70%. Traders and oil companies have almost given up trying to predict and study this fall and expecting the fall to either slow down or stop. The market on the whole is also notably bearish in nature. As of now, $20 is the lower benchmark expected, but Standard Chartered has said that fund selling may not give up till the $10 mark is breached.
Decline and recovery
The recovery process is expected to take years, if large oil corporations are to be believed. Futures were also sold at low prices, sometimes as low as $50 through till 2021. BP, one of the largest players in the market has released a statement where they have said that it may reduce its total workforce by 5% if the slump continues. The effects were also immediately felt in places like Brazil where Petrobas's investment plans were cut for the third time in the last two quarters. The Royal Dutch Shell, one of the biggest in the world, saw their shares fall by 11% while Exxon Mobil dropped by 4%.
The drop in prices, something that has been happening for over 18 months now was not expected to reach these crisis levels and has cost many thousands of people their jobs. The summer of 2014 saw prices as high as $100 a barrel. The fall has stretched out to be a lot longer and run way deeper than first expected.
Countries like Russia and Saudi Arabia that rely on oil for over 40% of export revenue can take a serious hit if the $30 price drops further. It has been estimated that the reserves of cash that was built up in the bullish market over the last few years can dry up in less than a year at these rates. Closer to home, dozens of small time refineries have gone bankrupt, unable to recover costs when oil is going at such low prices.