Brent oil falls to new five-and-a-half-year low

6th January 2015

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The price of Brent crude oil dropped to a new five-and-a-half year low today of $52.27 per barrel.

Brent fell by 3% earlier to $51.23 before recovering somewhat.It comes after a drop of 6% yesterday.

The Organisation of Petroleum Exporting Countries’ (Opecs’) largest oil-producing nation, Saudi Arabia cut its prices to Europe while raising them for Asian markets, which has been seen by some analysts as a move to protect its market share in the West.

Record production from Russia and Iraq have increased fears of a global glut in crude oil which, combined with weak demand could push prices down further.  The price of Brent crude and of US oil (known as West Texas Intermediate Crude)have more than halved from $115 per barrel in the middle of last year.

US oil production has surged as a result of shale rock fracking in states like North Dakota and Pennsylvania.

Asda, Morrisons, Sainsbury’s and Tesco are all cutting their petrol and diesel by 2p a litre from today.

Alastair Baker and Patrick Brenner, both fund managers for multi-asset investments at Schroders, said in a research note that the recent sharp falls in the oil price reflect Opec putting the squeeze on non-Opec producers (primarily US shale oil), to see who will blink first in a game of “chicken”.

They said: “Shale oil as the swing producer has changed the oil market from one which experienced long periods of boom and bust, to one which can rebalance itself fairly quickly.  We therefore expect price stabilisation and possibly even a rebound over the medium term.  However, this will not be before many shale oil producers experience severe financial difficulties.

“Given the high weight of energy in the US high yield sector, we have downgraded our view on US high yield bonds.”

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