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In the US the price of oil drops dramatically!

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Oil has fallen to a real low – down to $41 a barrel and a number of analysts in the United States and Europe are claiming that it could fall even further, to as low as $30.

The last time oil fell to such a low was at the height of the 2009 global economic crisis. Today, there are also serious concerns about the Chinese economy and a problem with an oversupply of crude from the OPEC nations.

A London based trader said, “The consensus here is that US crude may well dip into that region – $US30 to $US40 a barrel. With the refinery runs decreasing, the feeling is there will be a lot more crude around.”

While cheaper oil is great news for countries like India and Japan that are over dependent on oil imports, it represents a real pain for oil suppliers such as Russia, Venezuela as well as private oil companies in the US and elsewhere. Suddenly, there is very little money left for oil exploration and drilling.

“Given where we are now, there is a 90 per cent likelihood that we will dip into the $30s,” explains Chris Main, an oil strategist at Citigroup Inc.

This sudden drop in oil prices comes after a recent rise which took it above $60. Investors had thought that the worst of the oil slump was over, but it wasn’t to be. Low oil prices are expected to result in substantial cuts in oil production.

Daniel Yergin, famour writer on the oil industry and vice chairman of IHS Inc says, “We are seeing the final act of the China-led commodity supercycle right now and that is affecting oil. And with the current oversupply on the market and the spectre of the return of Iranian oil, we could certainly revisit the lows of the financial crisis.”

As Yergin explains, with the new US-Iran deal, we could see millions of barrels of Iranian oil being released into the global market, as the US lifts its sanctions over Iran. This would boost the global oil supply substantially and cause a real oil glut to develop with other major oil producers from OPEC ramping up output as well.

Amrita Sen, chief oil analyst at Energy Aspects says, “To end this vicious downward spiral, crude prices need to head lower. WTI needs to be in the $US30s for a while for producers to get really hurt and to cause the final flush out in supplies.”

It does seem interesting times are ahead. Because of the drop in oil prices, the global equations have changed quite a bit. President Putin no longer seems as powerful as he once seemed to be without the oil wealth to back him up, Venezuela has given up projecting its socialism globally and the Middle Eastern Sheikhs have stopped buying expensive assets all over the world. Inflation in Europe and Asian countries like India is at a record low – because of low oil prices. Interesting, indeed!

Author: Raghav Hegde – India
Source foto: publika.md

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