Oil plunges below US$50 mark dip to 5-1/2 year lows

07-Jan-15

Benchmark Brent crude futures fell to US$50.4 a barrel, their lowest level since May 2009, while US futures fell to April 2009 lows of US$47, as per Reuters. Oil rebounded before end of day, but marginally. Thus oil prices hit fresh five-and-a-half-year lows as global business growth slowed to its weakest level in a year and analysts said a building supply glut meant that more falls were likely before a rebound, as per Reuters. The low prices are a result of high output clashing with sluggish demand, especially in Europe, which is still struggling with its debt crisis, and in Asia, where China's growth is slowing and Japan is battling recession. On the demand side, output from North American shale producers remains high, although drilling is slowing, and OPEC has so far resisted calls to cut production in support of prices. The expected cut in production by high-cost shale producers is unlikely to occur until the middle of 2015. The pace of global business growth eased to its weakest rate in over a year at the end of 2014 as rates of expansion slowed in both the manufacturing and service industries, according to JPMorgan's Global All-Industry Output Index, produced with Markit. Nobuyuki Nakahara, a former oil executive and ex-member of the Bank of Japan's policy board, says, "Oil prices are likely to keep falling due to slower Chinese growth and because the years of prices above $100 before the recent plunge were 'abnormal' historically."