Oil oversupply fears continue to grow

Oil prices have hit another five-year low.


Blue avatar for FOREX.com guest contributors
By :  ,  Financial Analyst

Oil prices slipped once again on Monday (December 8th) hitting another five-year low.

In Monday afternoon trading, brent crude slipped down to $67.30 (£43), a drop of $1.77, while US crude also slipped $1.44 to $64.40. Both had reached historic lows during the previous week with both hitting another five-year low. While the declining prices may be good news for motorists, it is spreading major concern among some of oil producing nations.

There are now growing fears of overproduction despite a recent meeting of the Organization of Petroleum Exporting Countries (Opec) deciding against a reduction in output. Members such as Saudi Arabia and United Arab Emirates were against cutting production and a decision was taken to retain the current levels.

Oil prices have slid dramatically over the past 12 months including a 40 per cent drop since June. Fellow Opec member Kuwait warned that unless the cartel decided to cut output, oil prices were likely to stay at around $65 a barrel. Low oil prices can have a huge knock-on effect across the globe, none more so than in Russia.

The country is heavily reliant on revenues from exporting oil and last week the Russian government warned it was close to falling into recession. Ministers stated that falling oil prices and the impact of Western sanctions for Russia's role in the Ukraine crisis could see the country enter recession next year.

Naeem Aslam, analyst at Avatrade, explained in a note published by Reuters that the falling oil prices are causing concern across a wide range of markets: "European markets are trading lower and following the sell off on Wall Street, as oil prices continue to stay under pressure. Investors are worried that there is no floor in sight for the crushing oil prices."

Find out about commodities trading and learn CFD strategies at City Index

Related tags:

Open an account today

Experience award-winning platforms with fast and secure execution.

Web Trader platform

Our sophisticated web-based platform is packed with features.
Economic Calendar