14 January 2015, Lagos – Oil prices on Tuesday dropped to nearly a six-year low with the prices of both Brent and United States crude oil converging briefly at a point as Saudi Arabia and its Gulf allies in the Organisation of Petroleum Exporting Countries (OPEC) insist on their refusal to cut production to boost prices.
As OPEC battles not to lose its Asian market share, the glut in the market forced the price of Brent down by $1.56 at $45.87 a barrel after a session low at $45.19, its lowest since April 2009.
Similarly, the United States crude oil West Texas Intermediate (WTI), was down to an April 2009 low of $44.20 earlier in the session before pulling back to trade down about 40 cents at $45.67 a barrel.
The arbitrage between US crude oil and Brent crude oil futures traded at parity for the first time since October 2014, with both markets at $46 a barrel at one point.
It was not immediately clear why the benchmarks converged, but Reuters quoted analysts as saying it was a combination of oversupplied global markets coupled with short covering on the US crude contract.
With the rising glut in the market, both contracts are on track to settle at fresh near-six-year lows.
The Wall Street Journal reported that Goldman Sachs and Société Générale had sharply lowered their oil-price forecasts in their latest reports.
The revisions came on the heels of last week’s lower forecasts from Citigroup Inc., BNP Paribas SA and Commerzbank AG.
Goldman Sachs, one of the most influential US banks in commodities markets, said it had cut its 2015 forecast for Brent to $50.40 a barrel from $83.75 and reduced its 2015 WTI price forecast to $47.15 per barrel from $73.75.
For 2016, Goldman Sachs sees Brent at $70 and WTI at $65, down from $90 and $80 respectively.
In 2008, when oil prices were racing up toward their all-time high at almost $150 a barrel, the bank forecast crude oil could hit $200.
The OPEC price war had intensified as the United Arab Emirates (UAE) last week joined Kuwait and Iraq in pricing crude oil they sell to Asia below that of OPEC’s top producer Saudi Arabia.
The discounts show how Gulf members, who account for more than half of OPEC output, are prepared to take on each other to retain market share and, in so doing, put more pressure on global oil prices.
As well as targeting North American shale, oil ministers from OPEC, including the UAE, have called for exporters, such as Russia, to cut output to lift prices.
Russia, in turn, wants OPEC and Saudi Arabia in particular to cut production first.
The UAE, OPEC’s fifth largest producer, has been expanding its output and remains on track to boost production capacity to 3.5 million barrels per day by 2017, up from about 2.8 million bpd, its oil minister said in remarks published last week.
– This Day