12th January 2015
The price of Brent Crude oil has continued to slide and on Monday hit a six-year low.
BBC News reports that the cost of the North Sea yardstick fell 3% to $48.54, its lowest level since 2009.
US crude followed Brent south – echoing its 3% fall – to $47.10 a barrel, again marking its cheapest cost since 2009.
According to the report Goldman Sachs said the price would stay close to $40 for most of the first half of this year, at which price the firm said investment in the US shale gas industry would be held up.
The price of oil has now fallen by more than 50% since June, when the cost per barrel stood at circa $110.
Commenting on the collapse of oil prices over the past six months Adrian Lowcock, head of investing Axa Wealth, noted that because petrol costs are a necessity for most households, any cuts in the costs will feel like a pay rise but it does take some time to work through.
He says: “The effect is that households feel wealthier and it should result in a boost in household spending in other areas. The benefits of a low oil price do not stop at the consumer. Companies also benefit. The most obvious businesses that will benefit are those which use oil intensively such as transport, airlines, manufacturers and chemicals companies.
“However, the impact on lower oil prices can be seen across a wide range of businesses and will lower costs for many that depend on the transportation of their goods. Retailers and supermarkets, in particular, could benefit from lower transportation costs.”
Investors are taking advantage of the lower price and seeing it as a prime buying opportunity as exchange traded funds (ETFs) which track the oil price have seen inflows reach a four year high. Nitesh Shah, associate director ETF Securities said: “Continued oil price declines drove further rounds of bargain hunting last week, with WTI and Brent oil ETPs seeing their highest weekly inflows since 2011.
“We believe that oil prices at these levels are unsustainable. Although OPEC resisted calls to cut production in November, highlighting the need for oil prices to find a new equilibrium, we believe the cartel will eventually have to reduce supply to help stabilise global oil prices. The cartel jointly produces approximately 40% of global oil output.
“Demand for cyclical commodities, including oil, could rise this year as economic growth continues to improve. US non-farm payrolls released on Friday displayed an upside surprise once again, providing a boon to cyclicals.”