Oil prices take another tumble

published 2 October 2014

Oil hit the skids again this week, with the benchmark future, Brent crude, falling below $95 a barrel. This is the lowest price since mid-2012. Oil has now fallen by almost a fifth since its 2014 peak of $115 in June. It has spent most of the time since the Arab Spring in 2011 in a range between $100 and $120.

What the commentators said

The latest slide, notes Andrew Critchlow in The Daily Telegraph, is due to the return of high-grade Libyan oil to the market; production had previously been hampered by the civil war.

The Hong Kong crisis has reinforced worries about subdued demand growth in China, and the dollar's rally is also having an impact. Commodities are priced in dollars and a higher dollar makes oil more expensive in other currencies, which reduces demand.

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The basic pattern in the past few months has been tepid demand growth as the European and Chinese economies have slowed. The fighting in Iraq has not disrupted Middle Eastern production and exports, while tapping shale has led to a glut in the US. Stockpiles are close to record levels.

Meanwhile investors reckon that sanctions will weaken the Russian economy, further tempering demand.

Weaker oil is excellent news for the world economy, said Allister Heath in The Daily Telegraph. Even taking into account the "extraordinary improvements in efficiency" that mean every unit of GDP consumes far less oil than it did in the 1970s or 1980s, high oil prices "undoubtedly aggravated" the downturn and lacklustre recovery in British and global growth. They jumped to $125 in 2011, up from $60 in 2009.

If prices fall much further, key Opec producer Saudi Arabia is likely to cut production to tighten the market, said Liam Denning in The Wall Street Journal. It can no longer balance its books if oil falls below a yearly average of $89 a barrel.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.