Oil prices have been hit by a combination of oversupply, weak global demand, Middle East unrest and the strong US dollar. Despite recovering from its latest slump yesterday and overnight, the international benchmark is near a 12-year low at $31.50 a barrel, a painfully unprofitable price for much North Sea production, where it costs an average of $50 to extract a barrel of oil.
Financial Post reported that the fell as much as 2.9 per cent in London on signs that the nuclear deal between Iran and world powers may be implemented by the time markets open on Monday, triggering sanctions relief for the Islamic Republic that paves the way for a surge in oil exports. It will add 500,000 barrels a day of exports within a week of the removal of sanctions and 1 million within six months, Roknoddin Javadi, head of National Iranian Oil Co. said last month, according to the Shana news agency.pri.
Turmoil on the Chinese markets, a strong dollar and more evidence of global supply remaining high despite an already heavily overstocked market prompted oil to fall sharply yesterday to a 12-year low. International benchmark Brent crude touched a low of $30.43 a barrel before steadying - and it had pared losses to a little below $30.90 this morning in London.
Meanwhile, The price of crude sold by OPEC members slid below $30 a barrel, the lowest level in almost 12 years, as turmoil in Chinese markets deepened the global commodities rout.
OPEC, which supplies around 40 percent of the world's oil, left its strategy unchanged at its December meeting in Vienna, effectively abandoning any limits on its production.
"I don't really see them changing for now," Jakob said, managing director of Petromatrix GmbH, said by phone as quoted from Rigzone referring to OPEC's leading member Saudi Arabia. "What we need to wait for now is for an OPEC country to collapse. That is still a risk factor, but it's not necessary an overnight risk factor." He added.
Oil production in the UK Continental Shelf last year rose by 8 per cent on 2014, according to trade body Oil & Gas UK. This bucked a 15-year trend of falling oil and gas production in the North Sea, but Oil & Gas UK believes the news will do little to improve belief in the sector.
The increase is actually simply a function of investments made anywhere up to a decade ago, when prices were projected to be much higher. "The fact is, the value of our product has more than halved. Times are really tough for this industry and for the people working in it," said Deirdre Michie, chief executive of Oil & Gas UK as quoted from The Week.
Amid predictions that prices could fall to $25, $20 or even lower, institutional investors have increased their net short position - bets that prices will fall - to an all-time high. Some bullish analysts, however, suggest the oil price may, in fact, have stabilised and that improvements in the US economy will prevent further sharp falls
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