Interactive Investor

Oil falls to 11 year low

22nd December 2015 12:41

Rebecca Jones from interactive investor

The cost of Brent crude oil fell as low as $34.04 a barrel on Monday, while West Texas Intermediate slumped to $34.3 - the lowest levels seen for more than 10 years - as the US passed legislation to lift a 40-year ban on crude exports.

The US decision is the latest in a string of events to drive the oil price lower, from progressively declining global demand to Middle Eastern oil cartel OPEC's decision to scrap its daily production limit on 4 December in order to protect its market share from encroaching US shale gas.

Markets and analysts now expect the supply/demand dynamic to worsen, with Goldman Sachs recently predicting that oil may have to fall to as low as $20 a barrel to clear current stocks.

"With no stabilisers, stock piles growing and little sign of any restraint from producers, the oil price can only go one way at the moment; sure, there may be up days in quiet markets, but that's about it. The mild winter in the Northern hemisphere continues, so stocks are building in product markets as well," says oil and gas analyst Malcolm Graham-Wood.

"Brent went through its 11 year low but I'm sure we can find a stat every day breaking some sort of record. Ironically, despite the warm weather, natural gas had a rally of sorts and today is higher again, but this is also probably transitional."

The slide in the oil price, which has seen Brent crude tumble from over $100 a barrel in June 2014 to its current historic low, has hurt the share prices of a number of energy and mining companies. These include UK listed energy firms Royal Dutch Shell and BP, which have seen their share prices slide 32.3% and 17.4% over one year to 22 December respectively.

Miners Anglo American and Glencore have suffered even steeper losses, with shares shedding 75.4% and 71.6% of their value respectively over the past year, prompting both firms to scrap their dividends in recent months.

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