Oil price dips below $53 as fears of global economic slowdown intensify

beggers January 5, 2015 0
Oil price dips below $53 as fears of global economic slowdown intensify

Shares fell heavily on stock markets on Monday as a fresh plunge in the cost of crude to $53 a barrel intensified fears about a slowdown in the global economy.

The price of a barrel of Brent North Sea oil fell by around 6% to its lowest level in five and a half years as evidence emerged that Russia and Iraq continue to increase their production despite signs that demand has softened in recent months.

Economists believe cheaper crude will lead to stronger global growth, and there was an immediate boost to consumer spending in the UK when the supermarkets intensified their fuel price war.

Stock market reaction was negative, however, with London’s FTSE 100 index – which includes a number of big energy companies such as Shell and BP – closing down 130.64 points at 6417.16. Wall Street’s Dow Jones industrial average fell by almost 250 points by lunchtime.

Lower oil prices will lead to higher disposable incomes and cut business costs, but stock markets believe the slide from a recent peak of $115 a barrel last summer reflects the slowdown in China, recession in Japan and looming deflation in the eurozone. As Brent crude lost more than $3 a barrel in London, falling through $53 before recovering to $53.24, New York light crude briefly dipped below $50 a barrel.

Oil analysts said soft global demand and increased production from countries such as Russia and Iraq were behind the price falls. “The easiest path for oil is down,” said Carsten Fritsch, a senior oil and commodities analyst at Commerzbank in Frankfurt. “Almost all market news and the fundamental backdrop are negative and it is difficult to see much upside at the moment.”

Lacklustre US economic data on Friday increased concerns about the state of the global economy and the strength of oil demand. “Oil demand is unlikely to be robust this year when we look at the state of economies in China, Japan and Europe,” said Yusuke Seta, a commodity sales manager at Newedge Japan.

In the UK, the prospect of motorists paying less than a pound a litre for petrol loomed larger after four supermarket chains announced a 2p a litre cut in petrol and diesel, bringing pump prices to a five-year low.

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The latest reductions mean Asda customers will pay no more than 105.7p a litre for petrol and 112.7p for diesel. It was Asda’s 14th fuel cut since the end of September, taking 21p a litre off petrol and 17p a litre off diesel. For Morrisons and Sainsbury’s, it was the 7th cut since the beginning of December.

Andy Peake, Asda’s director of petrol trading, said: “As fuel prices continue to drop, Asda is leading the way … No matter where customers live, they will benefit from the same fuel price with our national price cap of 105.7p a litre for unleaded and 112.7p for diesel.”

Motoring organisations welcomed the cuts. The RAC’s fuel spokesman, Simon Williams, said: “With the average price of petrol already at levels not seen since January 2010, this latest cut will send the average price even lower, which is more great news for the motorist as millions head back to work following the festive holiday. We think there is still more room to cut further, perhaps by as much as 5p to 6p by the end of January.

“The cuts are bringing us ever closer to the £1 per litre average for petrol which the RAC said last month could be a possibility for the start of the new year. Of course it would also be an extremely welcome move for motorists and businesses alike.”

The AA president, Edmund King, said: “Further drops in the pump price are extremely welcome. However, small rural towns are again being left behind by the price falls in the more competitive areas. This continues to feather the fall in the national average.

“We would love to see £1 per litre and we may possibly see it in many parts of the UK but it is unlikely that the average price will drop as quickly to the £1 level, partly because 70% of the price is tax. There is still a price lottery out there so we advise drivers to shop around.”

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