Oil price falls to 11-year low with global glut expected to deepen in 2016

Thepriceofoilhasfallentoitslowestlevelin11yearsascommoditymarketsrespondedtosignsthattheglobalglutofoilwilldeepenin2016.

DealerssaidthecostofcrudewasoncourseinDecembertoregisteritsbiggestmonthlyfallsincethecollapseoftheUSinvestmentbankLehmanBrothersinOctober2008.

Thelatestfallinpriceswaspromptedbyconcernsthatamarketalreadyawashwithoilfromthetwobiggestsuppliers–SaudiArabiaandRussia–wouldreceiveadditionalsupplyfromtheliftingofsanctionsagainstIranandtheendingofa40-yearUSexportban.

InLondon,thepriceofbenchmarkBrentcrudehitalowof$36.05(£24.22)abarrelonMonday,itslowestsince2004andbelowthelowpointreachedduringthefinancialcrisisof2008-09.

OilpriceswerealsoontheslideinearlytradingontheothersideoftheAtlantic,withUSlightcrudedippingbelow$34abarreltoitslowestlevelinsixyears.

WhileoilministersfromQatarandIraqsoughttotalkuptheprospectsofarecoveryintheoilprice,analystssaidcrudewaslikelytogolowerintheshortterm,giventhatproductionisclosetorecordlevelsatatimewhendemandhasbeenaffectedbytheslowdowninChinaandotherleadingemergingmarkets.

OilpriceshaveslumpedbyafifthsinceameetingoftheOpeccartelon4Decemberfailedtointroduceanycurbsonproduction,andaredownbyalmost40%in2015sofar.

PatriciaMohr,vice-presidentofcconomicsandcommoditymarketspecialistatScotiabank,said:“2016willremainchallengingformostcommodityproducers–withglobalgrowthexpectedtoremainlacklustreatbest.Inparticular,competitioninoilmarketscouldintensifyinthefirsthalfof2016,assanctionsonIranarelifted.”

SheaddedthatthecostofUScrudehadcontinuedtodriftlowerfollowingtheOpecmeeting,whichcameattheendofayearthathasseenthecartelincreasesupplyby1.4mbarrelsaday.Mohrsaidtheoilpricecoulddropto$30abarrelinthenearterm.“Unlikepreviousexperience,OpecdidnotevensetasalesquotaattheDecembermeeting,withcountriesnowlargelyproducingatwill,”saidMohr.

Iraqhadincreasedproductionby930,000barrelsadaysinceNovember2014,whileSaudiArabiahadsuppliedanadditional580,000barrelsaday.

OleHansen,SaxoBankseniormanager,said:“Really,Iwouldn’tliketobeintheshoesofanoilexportergettinginto2016.It’snotexactlylookingasifthereislightattheendofthetunnelanytimesoon.”

TheinvestmentbankGoldmanSachshassaidthatitcouldtakeadroptoaslittleas$20abarrelforsupplytoadjusttodemand.

ThelowercostofcrudehasdealtablowtoeconomiesofoilproducerssuchasNigeria,whichfacesitsworstcrisisinyears,andVenezuela,whichhasbeenplungedintodeeprecession.

EvenwealthyGulfArabstateshavebeenhit.LastweekSaudiArabia,KuwaitandBahrainraisedinterestratesastheymovedtoprotecttheircurrencies.

RoyalDutchShellandBPwereamongthetop10biggestfallersonaquietdayforsharetradinginLondon.TheFTSE100closed17.5pointslowerat6035.

However,ShellsaidonMondaythatitispressingaheadwithits$60bntakeoverofBGGroupdespitedoubtsamongsomeshareholdersaboutthedeal’sviabilitygiventhefallingoilprice.

SentimentincontinentalEuropewasmoreinfluencedbytheinconclusiveelectionresultinSpainthanbythelatestdeclineintheoilprice.Spain’smainstockmarketindex,theIbex35,closedatitslowestforthreemonthsfollowinga3.6%fallonfearsthatasecondelectionmightbeneededtoformastablegovernmentinMadrid.Germany’sDAXfell1%.

JonathanLoynes,chiefEuropeaneconomistatCapitalEconomics,said:“TheinconclusiveresultoftheSpanishgeneralelectionissettotriggeraperiodofpoliticaluncertaintywhichcouldslowthecountry’seconomicrecovery.Butitalsorepresentsanotherblowtotheeurozone’spolicyofonerousausterity.”