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Oil prices drop to two-year minimum

Brent crude October contracts are trading at $96.57 per barrel on London’s ICE Futures Europe for the first time since July 2012

MOSCOW, September 15. /ITAR-TASS/. Oil prices dropped to two-year minimum levels on Monday, with Brent crude October contracts trading at $96.57 per barrel on London’s ICE Futures Europe for the first time since July 2012.

Investors said the next critical level would be $80 per barrel. But prices will not stay there long as this would make shale oil production in the United States unprofitable.

With the oversupply of oil, dwindling demand in China worries traders more than political crises. Royal Bank of Scotland on Monday lowered its annual forecast for economic growth in China, the world’s biggest oil importer, from 7.6% to 7.2% due to poor industrial performance indicators.

In August, industrial production in China increased by 6.9%, the lowest growth rate since December 2008, making the country the main challenge for the energy markets, Dominic Schneider, chief strategist for commodities markets at the UBS Singapore Office, said.

Mark Mobius, Executive Chairman of Templeton Emerging Markets Group, said the price of Brent crude could drop to $80 per barrel but only for a short period and could range from $80 to $120. He thinks that prices will stay above $89 per barrel.

He said demand for oil was growing in the majority of developing countries, including China and India. But oil companies have to invest more in geological prospecting and development of new deposits. Many believe that the hydraulic fracturing technology will usher in an area of cheap shale oil, but costs suggest otherwise, Mobius said.

OPEC countries’ reaction to declining oil prices has so far boiled down to Saudi Arabia’s decision in August to reduce oil supplies to the market by 400,000 barrels a day to 9.6 million barrels.

Saudi Minister for Petroleum and Mineral Resources Ali al-Naimi said there was no reason to worry as prices tended to go up and down all the time. He expects oil prices to go back up to $100 per barrel within several months.

Ole Hansen, senior commodity strategist at Saxo Bank, said that with the Chinese and European economies slowing down, $100 per barrel of Brent blend was the price that would support the growth without doing any harm to suppliers.