Oil Drops To 11-Year Low Amid Middle East Turmoil

© Sheng Li / Reuters

Crude fell to its lowest level in more than 11 years on Wednesday. The conflict between oil-producing countries in the Middle East spells doom for any possible production cap deal.

Global Brent crude benchmarks were at US$34.93 a barrel at 12300 GMT, down 1.5 percent from the day before and the lowest since 2004. US crude futures subsided 46 cents to US$35.95 per barrel, continuing their slide from Tuesday.

RT report continues:

The prices fell despite the escalating conflict in the Middle East over Saudi Arabia's execution of a prominent Shiite cleric. Several Sunni nations allied with Riyadh severed or downgraded diplomatic ties with Iran, as Tehran voiced outrage over the death.

While tension among major OPEC members would normally cause a spike in oil prices as trade would be concerned with possible supply problems, this was not the case this week. Oil prices continued to fall after a slight hike on Tuesday amid overproduction of hydrocarbons.

The oil cartel refused to moderate its production as members are concerned with holding their market shares and pushing out high-cost competitors rather than seeing the price go back up. Russia, which is not an OPEC member, too showed record-high production of oil last year.

The supply pressure is expected to rise soon once Iran returns to markets that had been closed to it due to US-championed economic sanctions and Tehran attempts to wrestle back its lost share. The ongoing sectarian conflict plays to the same trend.

"There are rising stockpiles and the tension between Iran and Saudi Arabia make any deal on production unlikely," Michael Hewson, head of strategy at CMC Markets, told Reuters.

The slump in oil prices follows the tumble in the Chinese stock market, which went down seven percent on Tuesday due to a drop in manufacturing activity.

Why Low Oil Prices Are Bad News

Published time: 14 Dec, 2015

RT reports that Crude oil dropped below US$35 a barrel for the first time in six years Monday, but what most media outlets report as good news is disastrous for some nations and Mother Nature after years of price-based fuel efficiency takes a back seat.

Leaders in oil-producing nations who depend on oil revenue to feed, house, and care for their poorest citizens are also struggling to maintain economic stability.

In spite of falling prices per barrel, countries are still increasing production for fear of losing market share.

Just two weeks ago, oil consumption in the US reached the highest level since the global recession. US refineries are running at more than 90% capacity, according to the US Energy Information Administration, and sales on heavy SUVs, pick-up trucks and other models with poor fuel efficiency have also increased.

EIA says this rising gas usage in the US means more greenhouse gases are entering the atmosphere. In the first four months of 2015, 352 million metric tons of carbon dioxide belched towards the sky, a 3 percent increase from 2014.

And for motorists who think the drop in oil prices is reflected at the pump, the multinational oil companies have clearly been taking them for a ride.

The Wall Street Journal calculated last month that the disparity between crude oil prices and gas prices cost US consumers US$1 billion.

Beyond the users, powerful producers have taken a huge hit.

Saudi Arabia may face a US$140 billion deficit this year, due in part to its overproduction of oil in response to increased fracking by their ally, the US.

The drop in oil prices is thought to have influenced the result of this month’s elections in Venezuela, home to the world’s largest proven oil reserves.
The South American country is headed for the world’s worst drop in GDP this year, struggling to pay for many of the social programs financed through its oil revenue.