As oil falls below $50, analysts eye 'mid-price' era

Tue Aug 4, 2015 1:42am EDT
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By Henning Gloystein

SINGAPORE (Reuters) - A slump in oil below $50 a barrel - a level it has held above for most of the past decade - has raised the prospect of a new era of lower prices, although a return to super-cheap oil seems unlikely.

Prices below $50 for the two crude oil benchmarks, North Sea Brent LCOc1 and U.S. West Texas Intermediate (WTI) CLc1, were the norm prior to 2005. Brent averaged just $18.37 a barrel in the 1990s, WTI $19.70 a barrel, and both only broke above $50 for the first time in late 2004.

China's explosive economic growth over the past decade, coupled with flatlining global output, saw Brent soar above $140 in 2008 and it has spent more than 90 percent of the past decade above the $50 mark.

But producers globally, in particular U.S. shale drillers, are now pumping record amounts of oil just as China's growth looks set to steady at lower levels, while alternative energy sources and better efficiency are denting demand in the developed world.

Suggestions that cheap oil will cure itself by spurring demand may fail to play out as consumers look to save rather than spend.

And a likely deal to lift sanctions on Iran and allow its huge oil reserves to return to markets, has led many analysts to trim their oil price forecasts to reflect deepening oversupply.

BMI Research, a subsidiary of Fitch Ratings, said on Tuesday that a strong U.S. dollar, China's weakening economy and the prospect of rising Iranian oil exports would keep downward pressure on prices in the coming months.

"A retest of Brent crude's 2015 low around $45 per barrel looks inevitable given current ample market supply and intensifying bearish market sentiment toward prices," the firm said in a note to clients.   Continued...

A worker fills a tank with subsidized fuel at a fuel station in Jakarta April 18, 2013. . REUTERS/Beawiharta