Oil prices hit six-year low

The oil market remains bearish as world prices reach a new six-year low. The Brent price of oil has fallen $44.20 a barrel, a drop of 2.6 percent, while the US West Texas Intermediate saw prices dip by 3.2 percent to $39.15 a barrel. Both benchmark prices had not reached such lows since early 2009.

The condition of the Chinese economy has stoked fears of future oil demand. The slowdown of the Chinese economy has caused fears that demand from the world’s largest energy consumer will fall.

The condition of the Chinese economy has stoked fears of future
oil demand

Oil prices have taken a hit since reaching a peak of $115 a barrel in June 2014. After oil prices began to fall, OPEC countries held output steady, eventually pushing prices down to $45 a barrel by January 2015, with a hope to maintain market share over rival producers.

Despite a number of predictions otherwise, prices have not yet bottomed out. Investors are increasingly concerned with a glut in the market. Although some producers have shelved exploration and drilling projects in response to falling prices, the US has recently seen its production capacity increase. As the Financial Times notes, “last week the number of rigs drilling for oil in the US increased by two, to 674, marking the seventh jump in the past eight weeks.”

The prolonged low price of oil has caused trouble for the finances of OPEC countries. Ministers from both Iran and Algeria have recently called OPEC to meet to discuss how to stabilise world oil prices. Such a move would require the approval of the tacit leader of the organisation, Saudi Arabia.

The effect also casts doubt on the anticipated September US Federal Bank interest rate rise. The depressed price of oil means that the Fed’s inflation targets that it wishes to reach before a hike may not be met.