US oil prices dipped below $30 a barrel in afternoon Tuesday trading while the UK’s Brent benchmark only just held above $30. Prices have fallen sharply in volatile trading as oversupply persists amid weak global demand.
Some members of the Opec group of oil producers have called for an emergency meeting to discuss reducing output.
Opec president Emmanuel Ibe Kachikwu said an extraordinary meeting could be held in early March.
On Tuesday, Brent crude fell as low as $30.34 per barrel before recovering to trade at $30.89, a fall of 2.1% on the day.
Meanwhile the US benchmark, West Texas Intermediate, slipped to $29.93 before regaining some ground to $30.57, a 2.7% loss.
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Oil prices have fallen about 15% since the start of the year to near-12 year lows.
North Sea Brent Crude has fallen 70% since September 2014, when it it was last at $100 per barrel.
Opec members are not due to meet until June, having previously met in December, but the deterioration in the oil price has prompted calls from several members for a fresh review of quotas.
“We did say that if it (the price) hits the $35 per barrel, we will begin to look (at)… an extraordinary meeting,” said Mr Kachikwu, who is also Nigeria’s petroleum resources minister.
He said that “a couple” of countries had been pushing for a meeting, but would not say which those were.
Much will depend on Saudi Arabia, which has resisted calls to cut production.
“Saudi Arabia has never held the position that it does not want to talk. In fact, it was very supportive of a meeting before June, at the time when we held the December meeting, if (there was a) consensus call for it,” the Opec president said.
Saudi Arabia wants to maintain market share despite the sliding oil prices.
Lower prices are hurting smaller oil producing nations, such as Nigeria, Algeria and Venezuela, which are all suffering heavily as the price of oil is no longer high enough to cover the cost of production.
Lower oil prices have also had an impact on Saudi Arabia.
It announced a budget deficit nearing $100bn (£68bn) last year, prompting tax rises within the kingdom.
Saudi Arabia also said it was considering listing state oil company Saudi Aramco on the stock market in an effort to raise cash.
“The near-term outlook for the oil market is bleak,” said analysts at Jefferies.
“Opec is producing flat-out into a market that is oversupplied by over one million barrels per day; already decelerating demand growth could further decay with slowing economic activity; and OECD inventories that are already at record levels are likely to expand through at least the middle of the year.”
There is such a big oversupply globally that countries are running out of storage.
The US, which is thought to have among the largest oil storage facilities in the world, has nowhere left to store it, according to Paul Stevens, professor emeritus at Dundee University.
“Storage is pretty much full and people are already talking about buying tankers as floating storage,” he said.
“But if supply continues to outstrip demand, then the only thing that you can do with the oil is sell it, which inevitably pushes the price down.”
Oystein Berentsen, managing director of crude oil at trading company Strong Petroleum, said the strong US dollar was a factor, but that oversupply was mostly responsible for falling oil prices.
“Once the crude surplus turns into a product surplus and we start running out of storage capacity, there will be even more pressure on prices and an imminent collapse,” he said.
Why is the oil price so low?
Oil prices have fallen by about 70% in the past 18 months as supply has outstripped demand. The demand for oil from China has fallen as its economic growth has slowed. Meanwhile supply has increased, partly due to the rise of US shale oil. In addition, the world’s largest exporter of oil, Saudi Arabia, has refused to cut production – something it has done previously to support oil prices. Analysts estimate that about one million barrels of oil are being produced above demand every day.
Consumers and some businesses have benefitted from lower oil prices. UK motorists have seen the price of petrol and diesel fall from about £1.40 a litre 18 months ago to about £1 now. Transport operators and airlines should also be benefitting from cheaper fuel. The lower fuel costs have also helped to keep inflation close to zero in many countries.
Oil exporting nations that rely on a higher oil price to break even are suffering, such as Russia, Nigeria and Venezuela, as are oil firms generally. There have been thousands of job losses in the North Sea’s oil industry. Investment in exploration has also been cut by big oil firms such as Shell, BP, Total and Exxon Mobil.