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Oil markets: How low is low?
December 9, 2014, 4:05 am

India buys almost 80 per cent of its crude oil needs from overseas and is keen to tap domestic reservoirs [AP]

India buys almost 80 per cent of its crude oil needs from overseas and is keen to tap domestic reservoirs [AP]

How low is low?

That question is on the minds of oil experts who are watching as prices continue to plunge. Is there an end in sight?

At the end of trading on Monday, West Texas Crude – the benchmark for US oil prices – fell to just above $63 a barrel. Brent crude dipped 4 per cent from a day earlier to $66.10

This is the lowest price in five years, back when the US sub-prime mortgage crisis was reaching its peak and starting a domino effect of global financial crises.

But now, oil prices have bucked the trend and fallen 40 per cent since June.

Could they fall by a total of 50 per cent come the beginning of 2015?

OPEC’s decision last week not to interfere in falling prices and refrain from cutting production has produced the opposite effect among the world’s biggest oil companies.

British Petroleum (BP) and other oil conglomerates announced earlier this week that they would cut the number of management employees and scale back on investments in the oil sector.

Such announcements fuel speculation that the price of a barrel of oil could fall to $50 a barrel.

For the time being, the feeling among some OPEC members is that oil prices will hover around $65 a barrel until the cartel’s next summit in June 2015.

That’s a nightmare scenario for producer Russia, already hit by US and EU sanctions, which needs oil prices to remain at high levels to fill its coffers.

Equally worried is Iran, which after years of sanctions and embargoes relies largely on oil production for its annual budget.

Major oil producers such as Texaco, ConocoPhilips, and others are also beginning to worry as they see their profits slashed. Prices at the pump in the US could fall to a national average of $2.50 in the next few weeks.

Ironically, it is advances in drilling that has propelled the US to the rank of number one oil producer in the world. Some analysts believe that it is the increased tapping of ‘shale’ oil in the US that has helped drastically slash global oil prices.

It is oil importers such as China and India, and cash-strapped Europe, who are likely to emerge as the biggest winners. If current oil price trends continue, both China and India could see higher GDP growth in 2015.

So, how low is low? Consider this: In December 2000, before then Texas governor George W Bush was sworn into office, oil was trading around $11 a barrel.

The BRICS POST with inputs from Agencies