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Oil sinks to wallow around a six-year low… Here's what it means for you

by , 18 August 2015

Since July, the oil price has been falling again. And it looks like it is on track to hit six year lows.

So why is the oil price under so much pressure again? And what does it mean for you?

Read on to find out…

What’s going on with the oil price?

From the middle of last year, the oil price started to fall. After Brent crude hit $46 a barrel in the middle of January this year, the price has shown short bouts of recovery.

But yet again, the price of oil is under immense pressure. The price has hit lows not seen since January.

Have a look at the price of Brent crude over the past year…

Chart of Brent crude oil price

The oil price is now hovering around six year lows as it appears a “global glut that drove prices into a bear market will be prolonged,” reports Bloomberg. Oil is now 30% off its highs of last year.

In the past, during times of oversupply, oil producing nations eased back on production, but this hasn’t happened this time around.

OPEC and the US continue to maintain output in spite of the “prolonged global surplus,” says Fin24. A market strategist at IG Markets, Bernard Aw, says the poor performance of oil comes down to “elevated stockpiles in the US and increasing production from OPEC, sluggish demand growth and a strong US dollar”.

BMI Research expects the oil price to remain in a bear market until 2018, notes BDLive. This as “global supply growth [will] outstrip the growth in global consumption for the next two years”.

What a lower oil price means for you

A lower oil price is positive for motorists. It increases the chances of fuel prices falling.

Yesterday, the AA said that it predicts a fall of over 50c a litre for both petrol and diesel at the beginning of September. And this is in spite of a weakening rand.

With the lower oil price increasing the chance of a fuel price cut, this is also positive for inflation prospects.

At time of writing, a barrel of Brent crude was trading at $48.50.

Time will tell how long oil’s rout continues for.

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Oil sinks to wallow around a six-year low… Here's what it means for you
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