Price of oil hits five-year low

The price of oil has fallen to fresh five-year lows in the wake of two separate reports indicating a
global supply glut. Opec oil producers released a forecast indicating less global oil demand next
year.
A separate US report, which showed a surprise increase in the country's crude oil supplies, also
pushed prices lower. The price of Brent crude has fallen 43% since mid-June. Demand for Brent
crude has fallen by 14% in the same period.
The influential oil commentator Jorge Montepeque at price assessor Platts said the price could fall
further. "There are a certain amount of people that think the mid-to-long term [price] is the mid60's," he told the BBC. "That means prices could fall further before they reach their balance. I think
we could see some spikes or troughs that are a little bit deeper. But over time we could end up
around $50 or $60 [a barrel]."
In its report, Opec said that it expected demand for its crude oil to fall to 28.9m barrels per day next
year, which is near ten-year lows. Opec's official production target is 30m barrels per day, meaning
significantly more oil would be on the market than was demanded.
In a separate note, the US Energy Department said there was a surprise increase in US crude
stockpiles last week of 1.5m barrels. Analysts had been predicting a decline of 2.2m barrels. That
increase has led to declining prices for petrol, jet fuel, and heating oil.
The Energy Department says that if its projections hold, the price of petrol in the US will fall by 23%
to $2.60 per gallon next year, saving the average US household approximately $550 a year.
The decline in oil prices has hurt the share price of several large firms, from Exxon Mobil to BP, but
helped businesses such as airlines where cheap oil prices can help boost profits. Shares in US
carriers American Airlines and United both ended slightly higher on Wednesday, while oil shares fell
sharply.
The airline industry body, IATA, said passengers would see cheaper fares. "We see prices for tickets
coming down by 5.1% next year and cargo rates coming down more than that, probably by 5.8%,"
Antony Tyler, director-general at IATA told the BBC.
"Airlines' fuel prices are based on the previous month's oil price so airlines are not seeing the results
of the falling oil price just yet."
Analysts suggest the strategy of maintaining output may be aimed at retaining dominance of the
market in the face of increasing shale oil production in the United States. The shale boom has been
one of the drivers behind the decline in the oil price. But as the oil price dips, shale becomes less
economical to produce.
If oil prices are allowed to remain low for some time that could cap shale production over the
longer term. So keeping oil prices low may in fact make sense for Opec.
"The Saudis want Opec to remain relevant,'' said analyst Phil Flynn, speaking before the end of the
meeting in Vienna. "The only way in their mind is to subdue the US shale producer." Opec accounts
for a third of the world's oil sales.