JEDDAH: US crude oil prices on Friday plunged below $40 a barrel for the first time since the 2009 financial crisis, notching their longest weekly losing streak in 29 years after a further rise in US drilling and a drop in Chinese manufacturing.
US October crude fell $1.07, or 2.6 percent, to $40.25 a barrel by 1:41 p.m. EDT (1741 GMT), having touched a new 6-1/2-year low of $39.86 a barrel. Front-month US crude has fallen 33 percent over eight consecutive weeks of losses, the longest such losing streak since 1986.
Brent oil fell $1.27, or 2.8 percent, to $45.35 a barrel, after hitting a low of $45.09 and threatening to break below $45 a barrel for the first time since March 2009, Reuters reported.
Commenting on its impact, John Sfakianakis, Middle East director at Ashmore Group, told Arab News: “No doubt, oil economies are impacted by the fall in oil revenues, some worse than others. Bahrain and Oman would feel the pinch far more than the UAE and Qatar, and Saudi Arabia still benefiting from high reserves and low debt.”
Although the current collapse in oil prices, the second this year, has raised alarm within the OPEC, including some of its core Gulf members, there is no indication they will reverse their policy of keeping production wide open to defend market share.
But Sfakianakis said: “Oil doesn’t seem to be headed to $20 per barrel even if such voices are more often heard today. Global demand is not falling, if anything it will rise in the coming years and growing economies in many emerging markets is a strong story.” He said: “Oil would revert to the $50s range sooner rather than later.
James Reeve, deputy chief economist, assistant general manager at Samba Financial Group, said: “Oil prices are likely to remain weak for the rest of the year. There are still significant stocks of oil to be worked off and the slowdown in China is not helping. Next year the impact of investment cuts by the big oil companies will help to stem supply and the US is likely to see strong demand growth. So we see average prices of $60 a barrel next year.”
However, he said: “Low oil prices are a boon for industry and consumers globally and should help to stimulate demand. “
Sfakianakis said the global economy is benefiting from lower oil prices especially the oil-import dependent economies such as China and India, so that is positive. Even for mature economies its growth positive. Yet lower oil prices shouldn’t be exaggerated as being singularly essential for growth if other downside risks aren’t adjusted such as debt in mature and developed economies.
“Gulf economies are still benefiting from a decade of strong growth and are better equipped to manage the revenue shortfall this time around,” he said.
Reeve said: “Some Gulf countries have ample financial reserves. Saudi Arabia, Qatar, Kuwait and the UAE. Oman and Bahrain are more vulnerable and will need to cut spending.”
In late 1985, oil prices slumped to $10 a barrel from around $30 over five months as OPEC raised output to regain market share following an increase in non-OPEC production.