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The New Year brings an even lower oil price with it

by , 05 January 2015

After the slide in the oil price last year, few could have anticipated the further fall in price.

But as the first trading week of 2015 gets underway, the price of Brent crude oil has continued to fall.

So why is the price of oil continuing to slide?

Let's take a closer look…

The oil price hits a five-and-a-half year low

The oil price is still under pressure as it hit a five-and-a-half year low today, says IOL. This as supply is growing and worries about economic growth continue.

Iraq and Russia are now producing more, adds IOL. This as growth worries in Europe and China lead to speculation over poor demand.

Take a look at the chart below showing the sharp slide in the oil price since June last year…

Chart of oil price

Through 2014, “Russia’s oil output hit a post-Soviet high,” reports BDLive. It averaged at “10.58-million barrels a day,” a rise of 0.7%. Exports from Iraq were also “at their highest since 1980 in December”.

Last year, the price of Brent crude plunged 48%, says Bloomberg. That’s its biggest fall since the financial crisis in 2008.

A survey by Bloomberg showed that in the face of calls to cut supply, OPEC “pumped above its target for a seventh straight month in December”.

A pickup in demand would no doubt help prices out, but that doesn’t look likely at the moment.

Demand for oil remains subdued

On Friday, “lack lustre economic data from the US” along with concerns over growth in “China, Japan and Europe,” have helped to fuel the oil price’s fall, says the SABC. The euro has also weakened, which “may have contributed to further oil losses as it reduces the purchasing power of euro holders for dollar-denominated oil”.

And oil’s rout may not be over.

Traders are “increasing bets on lower oil prices,” adds BDLive.

At time of writing, the price of Brent crude was trading at $55.53.

The sliding oil price isn’t good news for oil companies, but it is good news for oil consumers, such as motorists. The drop in the oil price over December means that SA motorists will see a significant fall in the price they pay at the pumps come tomorrow night.

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The New Year brings an even lower oil price with it
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