Officials in some oil-rich states have issued staunch warnings about oversupply in the oil market. Even as the global economy picks up steam, a supply glut has dragged down prices and depressed energy shares.
Oil prices slid to their lowest levels in almost six years on Tuesday as a prominent oil-rich country's energy minister reiterated OPEC would not cut its oil output to support global prices.
"We cannot continue to be protecting a certain price," the United Arab Emirates' energy minister, Suhail al-Mazroui, said in Abu Dhabi. "We have seen the oversupply, coming primarily from shale oil, and that needed to be corrected."
While al-Mazroui spoke, the price for a barrel of Brent crude dropped 4 percent below $46, extending Monday's 5.3 percent plunge that came as Goldman Sachs cut its price outlooks for the oil market. Yesterday, Brent crude closed below $50 for the first time since April 2009.
Goldman Sachs lowered its three-month price forecast for Brent to $42 a barrel from $80. It also lowered its estimate for the coming year, saying Brent crude would average $50.40 a barrel, down from $83.75. Forecast for another oil contract, West Texas Intermediate, were also reduced to $39 a barrel within six months, down from a previous estimate of $75.
With the price of oil now at a near six-year low, analysts expect the availability of new sources of oil and the inability of OPEC to prevent a price war between producers to further drag down oil prices.
The UAE last week joined Kuwait and Iraq in pricing crude they sell to Asia below that of OPEC's top producer Saudi Arabia in an effort to retain market share.
Also on Tuesday, Iranian President Hassan Rouhani issued a staunch warning to countries he said were undercutting other's oil revenues.
"Those that have planned to decrease the prices against other countries, will regret this decision," Rouhani said in a speech broadcast on state television. "If Iran suffers from the drop in oil prices, know that other oil-producing countries such as Saudi Arabia and Kuwait will suffer more than Iran."
Win some, lose some
Oil prices have fallen by more than half since last summer. High prices for crude spurred producers in the US and Canada to tap shale oil using new extraction technology. In response, Middle Eastern producers, notably Saudi Arabia and Iraq, started pumping more oil in a bid to reduce the incentive for bringing these new oil sources online.
At its November meeting, OPEC was widely expected to announce a production cut to shore up prices, but it did nothing. Since then, the price drop has continued unabated.
The lower prices have been good news for consumers, particularly in Europe and the US, which are still recovering from the global financial crisis.
But the fall in prices has been disastrous for big oil producing states such as Russia, which was already reeling from western economic sanctions imposed for its annexation of Crimea and involvement in the conflict in eastern Ukraine. Venezuela, another big oil producer, also faces economic collapse.
sgb/cjc (Reuters, AFP)