Oil prices fell over 3% on Wednesday after new data showed US crude supplies continuing to grow while Saudi Arabia promised to keep up its policy of pumping its wells flat out. A barrel of benchmark Brent crude was changing hands for $36.58 at one stage, leaving it on track to end 2015 30% lower as demand failed to keep up with supply.
The latest fall – in touching distance of 11-year lows – should be good news for motorists and many industries but will unnerve companies and their suppliers who depend on North Sea exploration and production.
Saudi Arabia and its Opec partners had hoped their tactic of keeping volumes up would drive out of business its new American shale oil competitors, but the tactic has failed so far.
Output from the shale heartlands of Texas and Pennsylvania did fall from a peak in April this year but has stabilised since as producers have ways to reduce costs and increase efficiency. Latest numbers released by the US government’s Energy Information Administration showed local production had risen again – by 23,000 barrels a day to reach 9.2m barrels in the week to Christmas Day.
Meanwhile refinery stockpiles of oil also increased – by 2.6m barrels – with the help of additional imports. Analysts had expected a 1m barrel decline which would have put gentle upward pressure on the price of Brent and the local West Texas intermediate blend, which was down 3% also at $36.70.
But there was a defiant message from Saudi Arabia, which has encouraged the Opec cartel not to cut its output targets in a bid to raise prices and instead try to win market share by offering the same amount of cheap oil.
“It is a reliable policy and we won’t change it,” the Saudi oil minister, Ali al-Naimi, told the Wall Street Journal, on the sidelines of an event in Riyadh. “We will satisfy the demand of our customers. We no longer limit production. If there is demand, we will respond. We have the capacity to respond to demand,” he said.
Pressure on oil companies could be seen on the London Stock Exchange with the BP and BG share prices down 1.5% while Shell’s value fell 1%, dragging down the wider a FTSE 100 index.
The fall in wholesale oil prices has been partly passed on to motorists in the way of lower fuel costs. Leading supermarkets in Britain cut their prices of petrol in the run-up to Christmas, taking petrol below £1 per litre.
Lower oil prices have put downward pressure on gas prices because many gas contracts are linked to the price of crude. This should mean lower household bills eventually, while prolonged depressed oil prices also means fewer jobs in North Sea production centres such as Aberdeen.
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