Brent Crude Oil Slides Below $35 for First Time Since 2004

The oil industry hasn’t rung in 2016 with quite as much gusto as crude producers would’ve liked. In fact, January has been volatile, with Brent crude sinking to under US$35 a barrel. This marks a low that hasn’t been seen since 2004. So what’s triggering the oil crash? Unsurprisingly, an unremitting rise in global production has played a key role in pushing prices down.  

Opec conflict sparks price plummet

While talks between Saudi Arabia and Iran did push the international oil benchmark back up to almost $39 a barrel, the relief was somewhat short-lived. Tainted relations have now dashed any hopes that Opec can secure a production cut in a bid to spike prices. As a result, traders and investors remain hung up on the supply surplus, as well as conflict within the Opec producers’ cartel. All factors have played a role in oil prices dropping by a huge 70% since mid-2014.

David Fyfe, head of research at Geneva based trading company Gunvor explains, “If anything, these tensions between Saudi Arabia and Iran are the nail in the coffin for any Opec co-ordination. There is no appetite for a reduction in production. We will see strong exports out of Saudi and extra volumes from other Opec members in 2016.”

Weak economic performance from China has also sparked major concerns, with the slump of the Yuan contributing to concerns over the demand for commodities.

Supply continues to outweigh demand

External production growth may have slowed, however it hasn’t braked fast enough to rebalance the plummeting market. Market analysts still maintain that crude oil supplies are surpassing demand by up to two million barrels a day. As a result, the budgets of the globe’s biggest producer nations have been thrown into turmoil. Leading energy companies have also been forced to reassess hundreds of billions of dollars worth of future spending campaigns. Concerns are rising, with prominent investment banks such as Goldman Sachs predicting drops as significant as $20 a barrel.

For more insight into the state of the oil economy, ‘Advances in the Analysis of Heavy Oils by High-Resolution ICP Optical Emission Spectrometry’ is a fascinating read. It looks at how impurities in heavy oils and controlled, and why the inspection of incoming and outgoing goods is a critical part of the quality control process. Without strict inspection protocol, oil producers risk price plummets caused by poor quality, as well as a global surplus.  

Image via Flickr Creative Commons. Photo credits: Lee Jordan