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Crude oil slides to less than $59 a barrel as worries grow over the Chinese and Russian economies

by , 17 December 2014

The price of Brent crude oil continued its fall yesterday. For the first time in over five years, the price dipped below $59 a barrel.

So what led to the latest fall in the oil price? And what does this mean for the oil industry?

Let's take a closer look…


The oil price traded as low as $58.50


Yesterday, the oil price traded “below $59 a barrel for the first time since May 2009,” reports the BBC. After hitting $58.50, there was a slight recovery in price.

This latest drop means the price of Brent crude is almost half what it was in June, adds the BBC. Poor demand and growing supplies are the primary reasons behind the slump.

The oil price took a knock after the release of manufacturing output data from China, which showed a decline, says BDLive. Adding to downward pressure on the price was “turmoil in Russia” as the rouble plunged in value.


What are the knock-on effects of a lower oil price?


A significantly lower oil price means that many global oil producers will delay “billions of dollars of capital expenditure projects,” says Fin24. This means that by 2020, the world could face “an enormous shortfall in oil supplies” if the projects remained this way.

Not only that, many of the shale oil projects in the US, which have added to the supply glut, “cannot breakeven,” adds Fin24. This would also add to a decrease in supply over the next couple of years.

This latest drop in the oil price comes just days after OPEC reiterated that it won’t cut production.

A senior oil and commodities analyst at Commerzbank, Carsten Fritsch, says they forecast “more volatility in the first half of 2015 before a recovery over the next six months,” says MoneyWeb. He added that “rebalancing of the oil market” must come from “non-OPEC supply”.

At time of writing, Brent crude oil was trading at $60.01 a barrel.

With the oil price continuing to surprise to the downside, the question now is how low can oil go?

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Crude oil slides to less than $59 a barrel as worries grow over the Chinese and Russian economies
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