Brent crude prices hit their lowest in over 11 years on Monday, hounded by a relentless rise in global supply that looks set to outpace demand again next year.
Oil production is running close to record highs and, with more barrels poised to enter the market from the likes of Iran, the United States and Libya, the price of crude is set for its largest monthly percentage decline in seven years.
While consumers have enjoyed lower fuel prices, producers have cut spending and thousands of jobs and the world’s richest exporters have been forced to revalue their currencies, sell off assets and even issue debt for the first time in years as they struggle to repair the holes in their finances.
OPEC, led by Saudi Arabia, will stick with its year-old policy of compensating for lower prices with higher production, and shows no signs of wavering, even though every dollar lower in the oil price brings fresh pain to its poorer members.
Brent futures fell by about 2 per cent to as low as $36.05 per barrel on Monday, their weakest since July 2004, and were down 41 cents at $36.47 at 1115 GMT.
Brent crude prices have dropped by nearly 19 percent this month, their steepest fall since the collapse of failed US bank Lehman Brothers in October 2008.
US crude futures dropped 31 cents to $34.42 a barrel, their lowest since 2009.
“With OPEC not in any mood to cut production … it does mean you are not going to get any rebalancing any time soon,” Energy Aspects chief oil analyst Amrita Sen said.
“Having said that, long-term of course, the lower prices are today, the rebalancing will become even stronger and steeper, because of the capex cutbacks … but you’re not going to see that until end-2016.”
Investment bank Goldman Sachs believes it could take a drop to as little as $20 a barrel for supply to adjust to demand.
The price of oil has halved over the past year, dealing a blow to economies of oil producers such as Nigeria, which faces its worst crisis in years, or Venezuela, which has been plunged into deep recession.
Even wealthy Gulf Arab states have been hit. Last week Saudi Arabia, Kuwait and Bahrain raised interest rates as they scrambled to protect their currencies.
“Really, I wouldn’t like to be in the shoes of an oil exporter getting into 2016. It’s not exactly looking as if there is light at the end of the tunnel any time soon,” Saxo Bank senior manager Ole Hansen said.
Reflecting the determination among the biggest producers to woo buyers at any cost, Russia now pumps oil at a post-Soviet high of over 10 million barrels per day (bpd), while OPEC output is close to record levels above 31.5 million bpd.