Sectors

US crude declined sharply below $28, recording a 12-year low mark

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January 21
2:36 AM 2016

The Asian trade on Wednesday saw US crude futures fall below an already low price of $28 a barrel, recording an all-time low since September 2003. The news hit the market after a warning sent by the International Energy Agency (IEA) the day before - "oil markets could drown in oversupply".

According to CNBC, the US crude futures dropped to $27.92, from its $28 a barrel at 0136 GMT, before recovering slightly. Brent Crude itself was close to the 12-year-low mark when it fell below its $28.57 and dropped to $27.92.

The situation looks rather bleak at the moment. "Oil prices are at a level where OPEC countries are all struggling. They are selling oil for cashflow not for profit," said Jonathan Barratt, chief investment financial officer. He feels that the US oil producers are holding out for now, but at a cost. Barratt is hopeful that, given the current condition, the oil makers would soon come up with a plan to push the prices up.

As The Citizen reveals, the IEA reports seem to have had an impact on the prices. Also, with the West Texas Intermediate (WTI) February contract coming to an end, the traders may have gravitated towards the March one. In its Tuesday statement, IEA mentioned Iran's return to the market has created an unwanted situation of supply exceeding demand by a great extent. So unless there is a dramatic turn of events, prices could dip even lower.

The market is keenly awaiting the reports that are due to be released by industry group, the American Petroleum Institute (API) on Wednesday, along with the EIA numbers that are due for Thursday. While some dismiss the facts by saying the financial markets are overreacting to the scene, the industry experts are keeping a sharp watch on the graph, as reported by Daily News & Analysis. They say the oil prices can see better days provided the storage space for crude is sufficient to hold the world stock. Around 230 million barrels of new storage are expected to be completed this year.

There's no doubt that the oil market has taken a hard hit, and the situation is highly likely to go from bad to worse. At this time, Maurice Obstfeld, the International Monetary Fund's chief economist breathed a little hope by saying, "The oil price puts stresses on oil exporters ... but there is a silver lining for consumers worldwide, so it's not an unmitigated negative."  

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