Crumbling oil prices look set to continue in to the new year, with the prospects for crude overshadowed by recessionary fears.
This morning, Brent, a benchmark price used in many international contracts, was 0.58% lower at $54.59 a barrel, while West Texas Intermediate (WTI) showed a sharper fall, down 1.38% at $45.90 a barrel.
Both crude types have seen a long, steady decline from a recent peak on 3 October of $82.29 in the case of Brent and $76.41 for WTI.
Growth forecasts cut
During the last three months, Brent has lost nearly 34% of its value, while WTI has fallen by nearly 40%.
There are two factors are bearing down on oil prices. One is an increase in supply, notably from US shale oil. But probably more important is the fear of a return to recession after the strong economic recovery of the last few years.
This last factor will have sounded alarm bells for those who recall previous recessions caused, at least in part, by rising oil prices. These included the slumps of the mid-seventies and early eighties.
Cuts package may bring relief
While higher oil priced are initially inflationary for oil-consuming nations, they usually turn recessionary after a while, as businesses close owing to rising energy costs and households cut spending to make room in their budgets for more expensive fuel.
This, in turn, sends oil-price hikes into reverse, as was seen in the price crash of the mid-eighties and the slide that followed the Asian financial crisis of 1997, after which some oil tankers were reportedly having difficulty finding customers for their cargoes.
This will cut 1.2 million barrels a day from output. While this is only about 1.2% of global production, the supply/demand balance is very tight, at about 100 million barrels a day, meaning quite small changes in output can have a disproportionate effect on the price.
The cuts are due to come into effect this month for an initial six-month period, so they may give some support to the value of crude.