Global oversupply and slowing economic growth bring down oil prices

15-Mar-16

Oil prices dipped on Monday, weighed by global oversupply and slowing economic growth, although the prospects of falling production lent crude some support, as per Reuters. U.S. crude futures were trading at US$38.2 per barrel, while Brent futures were down at US$40.3 a barrel. Morgan Stanley said on Monday that "hedging plus storage" was capping U.S. crude prices, meaning that traders were selling futures to hedge forward production and storage which will pressure prices. They added that prices "will struggle to break US$45 in the front, even if the USD continues to pullback." While Morgan Stanley said that oil prices had likely bottomed out, it warned that a slowing economy and high production would prevent sharp rises, adding that cheap oil had not provided the economic boost to growth that many had hoped for. "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," it said. For 2016, the bank said it was "no longer looking for an acceleration in 2016 GDP growth" and that the risk of a global recession was now 30%.