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A miserable start to 2016


Brent 2015-16
After hitting $39 a barrel on Monday on the increased tension between Saudi Arabia and Iran, Brent fell to a low of $32.16 this morning – a drop of 17% in a few days.

Oil prices have fallen to levels not seen since the early 2000s as increasing production counteracts concerns about supply disruption from geopolitical tensions. Near-record output from OPEC, Russia and North America has caused a huge supply overhang. Adding to the concerns is weakening demand, especially in Asia.

The price is down 70% since the downturn started in June 2014.

An important driver is the latest turmoil in China’s financial markets, where equities are sliding and the pace of the renminbi’s decline has quickened. China is seeing the slowest economic growth in a generation, and investors fear that the world’s second-biggest economy is slowing faster than expected.

The continued buildup in US stockpiles contributes to the drop in prices. Moving forward, output from the US and other non-OPEC producers is expected to moderate. But even if production falls, it will take time to work down excess supplies and re-balance the market.

US stocks
Source: EIA weekly petroleum status