Oil prices continued to slide unchecked yesterday. Brent fell by an additional 3.8% to $51 per barrel, while WTI shed 4.2% to reach $48 per barrel. Brent has dipped below the $50 per barrel mark this morning, putting it at its lowest level since April 2009. It has now declined by more than 11% since the start of the week. The latest slump was triggered by Saudi Arabia’s lowering of its official selling prices (OSP) the day before (see yesterday’s Commodities Daily). Saudi Arabia is thus continuing to signal that it is not willing to cut production and give up market shares. Other OPEC members such as Iraq, Iran and Kuwait are likely to follow Saudi Arabia’s lead in the coming days and likewise reduce their selling prices. Consequently, the oil market will remain significantly oversupplied for the foreseeable future. According to the oil minister of the United Arab Emirates, the oversupply could last for months or even years if production in non-OPEC countries continues to grow as it is doing at present. If these countries were to behave “rationally”, the adjustments could be made this year. We expect this to happen in the second half of the year because shale oil and oil sand production is no longer profitable at today’s prices and is thus likely to be reduced. What is more, oil demand will be significantly higher in the second half of the year for seasonal reasons. That said, there is little reason to expect any price recovery in the short term, so prices are likely to remain under pressure for the time being.
