Oil Prices drops Below $30 a Barrel

Since  the new year, the price of oil has surprised even the most bearish punters, plunging  below $30 a barrel, its lowest level since 2003.  ( Lost almost 70% in last eighteen months) Turmoil in Chinese markets and the expected increase in Iranian crude exports added to concerns that a global glut will linger.

The trouble is that apart from India and a shaky China ( consumes about 12% and second only after US of total  global oil demand), demands are not looking promising anywhere  else this year.  Europe is unlikely to see  strong oil-demand.  Although America’s economy continues to grow, tightening fuel-efficiency standards,  caps the upside.  In  Middle East, where fuel use rose last year,  however citizens are more likely to keep their cars off the road after their governments raised petrol prices/ eliminated fuel subsidies altogether to shore up  their public finances.

Selective  oil  & allied  industries  has began  big cutbacks. But as of now they are not yet enough to reduce the glut. Global inventories are at record highs. An estimated 2,50,000 oil workers have lost their jobs,  manufacturing of drilling and production equipment has also fallen sharply. About 40 companies in North America have gone into bankruptcy protection.

Goldman Sachs said this week, it is sticking to its call that oil prices could fall to $20 a barrel but added that it is still not the bank’s base-case forecast.  Such low prices  seems possible as we   expect  a  surge  in Iranian  oil ( likely to add about 500,000 barrels within weeks of the sanctions relief)  to the already oversupplied global market.