Oil prices crash below USD 27, further worries among traders

Newsroom 21/01/2016 | 12:08

U.S. oil prices crashed below USD 27 a barrel on Wednesday “for the first time since 2003”, furthering worries among traders that the current crude supply glut could last longer, according to Reuters.

The 6.7 percent drop in oil prices on Wednesday came amidst concerns that the rate of Chinese growth will fall below expectations, with “a slowdown in its industrial purchasing [standing] to keep the world awash in crude oil and other raw materials for months, and perhaps longer”, says the Wall Street Journal. “While the oil-price plunge, now in its 19th month, largely has been driven by oversupply during a production boom in the U.S., weaker demand could delay a price recovery to 2017 or beyond”, report analysts according to WSJ.

Indexes on the stock exchange market also felt the drop, where “the Dow Jones and S&P 500 indexes closed 1.56 percent and 1.2 percent down, after tumbling more than 3 percent earlier” and “the main European stock exchanges also slid to a 15-month low”, says the BBC. Moreover, “top emerging market shares and currencies were also caught up in the turmoil, with the Russian rouble hitting a new record low of 80.295 against the dollar”, adds the BBC.

Nevertheless, more oil is set to be pumped into the already oversupplied market. The recent lifting of Western sanctions on Iran means that up to 500,000 barrels per day of Iranian crude could be added to the markets. Already, a Middle Eastern shipping firm “became one of the first to resume direct business with Iran”, reminding traders “how quickly more oil may flow”, according to Reuters.

At the same time, “fresh data from the American Petroleum Institute on Wednesday showed U.S. crude stocks rose more than expected last week” with crude inventories having overshot analysts’ expected increase of 2.8 million barrels by 1.8 million, reaching 485.2 million in the week ending January 15, said Reuters.

Right now, the expectation is that “the global crude glut [will] persist through at least the end of this year, adding to stockpiles that in some places are testing tank limits”, also added Reuters.

Andreea Tint

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