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Oil May Slide to $50

Oil May Slide to $50Oil May Slide to $50

OPEC has lost its competence, as it failed to stabilize oil prices at the last meeting, according to Bank of America. It warns oil will slide to $50 a barrel leading to wild prices, where only rich Middle East states like Saudi Arabia will benefit.

Countries that don’t possess vast reserves, such as Venezuela and Nigeria, will struggle to survive; Francisco Blanch, Bank of America’s head of commodity research was quoted by RT as saying. The crucial changes in the global energy industry are also caused by the development of liquefied natural gas (LNG). Years of oversupply will bring down oil prices allowing Europe to look for cheaper sources of gas.

If oil producers don’t manage to curb that oversupply, the bank expects the price will slide to $50 per barrel. It will take around six months to end the 1 million barrels a day of excess oil on the market. “We expect a pretty sharp rebound to the high $80s or even $90 in the second half of next year,” said Sabine Schels, the bank’s energy expert.

Crude oil has lost around 40 percent of its price since the beginning of the year, and is hitting five-year lows. The price of Brent crude has fallen below $66 per barrel on Wednesday.

The Bank of America’s year-end report says at least 15 percent of US shale producers are losing money at current prices, and more than a half will if crude falls below $55. The high-cost producers in the Permian basin will be the first to be hit by the crisis, and may soon have to reduce their oil output.

The falling oil price could lead to the scrapping of shale projects in Argentina and Mexico, and force the cutting back of exploration of Canadian oil sands and some of Russia’s remote fields. The major oil companies will have to cancel projects even if they make money with the Brent crude price below $80.  Bank of America said the catastrophic drop in oil prices is worth $1 trillion of stimulus to the global economy, which is equal to a $730 billion “tax cut” in 2015.

 

Financialtribune.com