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Oil prices slump below $40 once again

15/03/2016 by

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The oil industry has noted a turbulent past few years, and now the price per barrel has dropped back below $40. An oversupply of fuel overwhelmed optimism from experts that the market had already bottomed out, pushing the price of oil even lower.

On Monday 14th March, the global benchmark for Brent crude oil dropped to $39.73, a fall of 1.63 per cent, reversing a previous upwards gain. Meanwhile, the price for each barrel of the US benchmark West Texas Intermediate crude oil dropped by 2 per cent to £37.72.

The falling prices come as Iran revealed that it wouldn’t be interested in discussing any kind of production freeze. In fact, the nation wants to increase its output to more than 4 million barrels every day until they even consider such talks.

PVM Oil Associates Oil Analyst Tamas Varga, based in London, said: “Oil is down because Iran said they would only join the output freeze group once they reached production of 4 million barrels a day.”

The news is particularly badly timed as experts from Morgan Stanley had previously suggested that prices were bottoming out. Though it warned that gains would be limited by current high outputs and slowing economies, they still said: “Oil prices now seem to have bottomed, even though they are likely to stay subdued for the rest of this year before starting to move higher in 2017. When oil prices are falling below production costs, the income gains for consumers will be smaller than the costs to producers and falling oil prices become a negative-sum game.”

Morgan Stanley’s warning follows similar views indicated by the International Energy Agency. On Friday 11th March, the organisation explained that Iran had returned to the market at an unexpectedly slow pace. In addition, higher costing production of US shale gas had tailed off, indicating that the market is slowing as producers cut output.

Elsewhere, it was reported that the number of active rigs in the UK continues to fall. Declines have been noted for 12 consecutive weeks, and with drillers wanting to slash their expenditure, numbers have now reached their lowest since December 2009 at 386 operations.

Despite the economic difficulties, the price of oil had actually been climbing over the past two months, rebounding after lows were experienced in January. In fact, the price per barrel of Brent crude passed $40 at the beginning of the month after being unable to surpass this boundary since December.

 

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