The price of oil has plunged amid fears of an economic recession after the terrorist attacks in the United States this month.
The price of oil has plunged amid fears of an economic recession after the terrorist attacks in the United States this month.
International Petroleum Exchange Brent crude oil futures fell below R189 a barrel for the first time since April last year. This is more than R29,75 below the previous settlement price. November dated-Brent North Sea crude was at R188 a barrel. This is down over R25,50 from Friday’s close.
Analysts say the fall was accelerated after investment funds began selling to limit losses. Oil prices spiked initially after the attacks amid fears that Arab oil-producing nations might withhold supplies if US retaliation sparked a wider conflict. But this concern has been overtaken by the prospect of a slump in the demand for crude.
Lawrence Eagles, an oil expert with the GNI brokerage, said the concern was a lower demand. "There is also a feeling that the risk to oil supplies has been significantly reduced because the US is now focusing on strategic operations and, in doing so, there is a general feeling that there aren’t likely to be large numbers of civilian casualties," he said.
"That in turn is less likely to alienate the Muslim populations in the Middle East, which could impact on the oil prices," Eagles said.
A cut in production though is not on the cards. The Organisation of Petroleum Exporting Countries has slashed output three times this year by a total of 3,5 million barrels. But experts say that they cannot do this again due to political constraints.
"Politically, there were requests, immediately after the strikes, that Opec should raise output. Now the US are saying we are happy with what Opec is doing. Whether they can talk about further reduction cuts is not known, I suspect they can’t," Eagles said.
Opec will discuss the latest developments when it meets in Vienna on Wednesday.