Wayne McCurrie, fund manager at Ashburton Investments, argues that Brent crude has fallen to levels which are unprofitable for shale producers – possibly putting a floor under the oil price.
Brent crude below 45$. Oversupply US shale. Below 45 no shale in the money so there is a bottom to how far price can fall
The fall in the oil price is encouraging investors to bail out of risky assets, says FXTM chief market strategist Hussein Sayed.
It’s evident that oil prices are becoming the primary driver of the financial markets. After both benchmarks entered a bear market with Brent plunging below $45 for the first time since November, investors are becoming more concerned as to when the plunge will stop.
Sayed believes that the market is losing faith in Opec:
Comments from Iranian oil minister, Bijan Zangeneh that Iran is in discussions with OPEC members for further production cuts fell on deaf ears, meaning that comments from OPEC members are unlikely to influence prices.
With no hard data to encourage bulls to jump in, the risk to the downside will continue to persist.
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Introduction: Oil worries grow as Brent falls through $45
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
There’s an edgy feel in the markets this morning, after the oil price slumped deeper into a bear market last night.
Brent crude is wallowing below $45 per barrel this morning, close to yesterday’s seven-month low, as concerns over a supply glut and falling demand dominate.
US crude oil has also tumbled, hitting its lowest levels since last summer. That helped to send energy stocks sliding on Wall Street yesterday.
This chart from Bloomberg shows how the oil price has now slumped by 20% from its recent highs, putting it in bear market territory.
The oil price
The selloff is being driven by several factors, including:
signs that the oil market is simply oversupplied,
scepticism that Opec can actually enforce its production freeze deal,
the reality that other producers – such as US shale oil drillers – will boost their own production if the price is right.
Mike van Dulken of Accendo Markets says a surprise fall in US oil inventories yesterday hasn’t given oil much support.
Crude oil prices have taken another leg lower, falling to their lowest level since August overnight.
The move comes as an un-named OPEC member casts doubt over the possibility of deeper production cuts by the group, offsetting a drop in US inventories.
Also coming up today…
There’s a raft of data coming up, including the latest economic bulletin from the European Central Bank and a new health-check on Britain’s factories.
European stock markets have dropped in early trading and are expected to be subdued; perhaps City traders are too worn out by the heat.