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Brent oil to reach $72-74 within 2014, face-off with recession monster

Brent oil to reach $72-74 within 2014, face-off with recession monster

LAHORE: Oil sank to a four-year low below $77 a barrel on Friday, dropping for 8 weeks in a row, its longest weekly losing streak since records began in 1988, pressured by excess supply and scepticism over output cut by OPEC at a meeting in two weeks.

Brent was up 64 cents at $78.13 a barrel as of 0946 GMT, having hit an intra-day low of $76.76 earlier in the session after a relentless slide from levels as high as $115/b in mid-June, showing a 28% decline.

Analysts are of the view that Brent crude prices would further plunge to $74-72 a barrel within 2014. The falling oil price may invite a face-off with recession monster. The rapid decline in the price of oil may signal approaching problems for the world economy. It can be difficult to understand that lower oil prices will cause a recession, but it was the 2008th high oil prices that pushed down consumption and there was a surplus of oil that caused a rapid fall in prices. The International Energy Agency (IEA) has now reduced its prognosis for world oil demand by 200,000 barrels per day on the grounds of reduced economic growth.

Plunging oil prices are sending the fragile Iranian economy spiralling into debt – with experts predicting the price of crude will fall even further next year. The regime could now be forced to slash public spending to compensate for a sharp dip in oil revenues, aggravating the country’s already critical unemployment figures.

Similarly, Russia will struggle to avoid falling into a recession if oil prices are allowed to drop to $78 a barrel — and could face calamity if prices fall below that level.

“If oil prices stay between $75 and $95 a barrel, we would see the kind of stimulus package that the Federal Reserve or Congress could never do,” said Douglas R. Oberhelman, the chief executive of Caterpillar, the multinational maker of heavy construction equipment in US.

“There may be some slowing, but it’s not going to be dramatic if we stay around $80,” Mine K. Yucel, senior vice president and director of research at the Federal Reserve Bank of Dallas said and added, “If the price goes below $70, we will probably see a tapering off of production.”

Oil supply and demand balances of the IEA and other forecasters point to a rising supply surplus in 2015 because of increasing production from the United States and other countries outside OPEC.

The Organization of the Petroleum Exporting Countries meets on Nov. 27 to discuss its response to falling prices. While some members such as Venezuela want OPEC to reduce output, top exporter Saudi Arabia has yet to say if it supports a cut.

Saudi Oil Minister Ali al-Naimi broke months of silence this week to reaffirm the kingdom’s longstanding policy of seeking stable global markets, but offered no insight on his response to tumbling oil prices.

Supply disruptions have the potential to support prices. In Libya, the Hariga oil port reopened after a protest ended, but an oilfield, El Sharara, remains shut.