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Oil price further skids on renewed global concerns

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September 21
12:02 AM 2015

Oil prices dropped further on Friday trading following the alert from the US Central Bank that global economy is weakening. Adding to this, indications that Organization of the Petroleum Exporting Countries (OPEC) would keep up oil production, in order to maintain its market share, also further dampened the market confidence. Equities on the US and European stock markets opened lower. The fundamentals seem to have turned bearish, fell the analysts. Oil price is expected to be $80 per barrel by 2020.

US West Texas Intermediate (WTI) crude futures fell 42 cents to $46.48 a barrel on Friday. Brent crude also eased three cents to $49.05 per barrel. A statement from Kuwait on Thursday saying oil market would balance itself, but it might take longer time. Kuwait is the key member of Opec. Kuwait statement further substantiates Opec's stand on maintaining the production level. 

Normally, OPEC cuts down production level whenever oil prices drop. The cut in production level usually pushes demand more thus boosting the prices in the global market. The US Federal Reserve in its Thursday meeting decided not to hike interest rates amid looming uncertainty in the global economy. 

The oil price is expected to reach $80 a barrel by 2020 gaining $5 every year. Though non-OPEC countries lowered their production levels, it failed to revive the demand. The main reason is that the drop in non-Opec countries production is not sufficient to absorb the glut in the oil production. 

Since the Saudi Arabia-led OPEC is firm on maintaining oil production level, all eyes turned to the US. Recently, there's been a drop in the US oil production. The US oil production eased to 9.1million barrels per day (mbpd) from the recent high of 9.6mbpd. Oil experts say that the US oil production drop is as per the forecast and it also indicates that market is beginning to correct. Oil price may fall further to $30 per barrel if the current situation persists.

Since June, oil prices fell 60 percent owing to the oversupply and slowdown in China's economy. The situation may further worsen going by the latest signs of adverse conditions in the world's second-largest economy. 

The latest data indicates that China's economy may further dip below seven percent growth rate for 2015. Barclays projects that the spread between Brent and US Crude may narrow down in the days to come. 

The rebalancing of oil market may happen in 2016, according to International Energy Agency (IEA). This will take place if production cuts continue for one more year.

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