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Oil plummets to $77 a barrel on the back of poor Chinese data

by , 14 November 2014

Since June, the price of Brent crude oil has been on a slippery slope south. Yesterday, a barrel slid to $77.

And looking to the futures market, it looks like the price of oil is going to continue to fall.

So what's causing the oil price to drop so much? And what does it mean for you?

Let's take a closer look…

The oil price is trading at a four-year low

Yesterday, the oil price “fell below $80 a barrel for the first time since 2010,” says IOL. The drop in the price of Brent crude oil coincided with China showing “more evidence of a slowdown” and OPEC (Organisation of Petroleum Exporting Countries) stating it sees a “substantial drop in demand next year”.

Figures out from China revealed that growth in factory output was under pressure and growth in investment hit “a near 13-year low,” reports BDLive. This all points to “a slower increase in fuel demand”.

The news from China suggests that “the world’s second-biggest economy will see its weakest growth for almost 24-years this year,” notes IOL.

Next week, the 12 nation strong OPEC are meeting, reports Fin24. But expectations are that the organisation will “decide against reducing output to stem a global glut”. This excess supply is partly due to the large amount of shale oil the US is now producing.

Forecasts suggest the oil price will continue to slide over the coming years

Analysts at Capital Economic think the oil price will finish next year at $75 a barrel and $70 a barrel the following year, says Business Insider UK. But they also believe that $70 a barrel could be closer than that.

Looking to the futures market, there does seem to be an overall consensus that the price of oil will continue to fall, adds Fin24. December contracts are now sitting at $78.47 a barrel.

One of Phillip Futures’ senior managers for commodities, Avtar Sandu, says “there are not many bullish factors to lift the market now,” notes IOL.

If the oil price continues to fall, South African motorists should benefit as long as the rand doesn’t weaken substantially. Come the end of the month, we’ll know the knock-on effect for the fuel price in December.

At time of writing, a barrel of Brent crude was trading at $77.52.

So the question now is, how low can oil go?

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Oil plummets to $77 a barrel on the back of poor Chinese data
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