Oil prices dropped for the second consecutive day yesterday (March 15), as concerns surfaced that a six-week rally could have fizzled out.
This followed the Organization of the Petroleum Exporting Countries (OPEC) pouring water on the hopes of a speedy removal of the global excess of unwanted crude.
Speaking on Monday, OPEC commented that demand for its crude oil would be lower than previously thought in 2016 as rival supplies prove better able to handle low prices, thus increasing excess of oil supply in the market.
In order to tackle the surplus, both Saudi Arabia and non-OPEC supplier Russia – the two biggest oil exporters in the world – have joined Venezuela and Qatar in setting out a proposal to freeze oil output at January levels. However, even if the freeze goes ahead, the continuation of high production means that global oil output is still outstripping demand by a minimum of one million barrels each day.
Speaking to Reuters, CMC Markets strategist Jasper Lawler commented:
“We ran into $40 a barrel … the idea OPEC was going to be able to at least freeze production and was along the right tracks has unraveled a bit.”
Brent crude futures LCOc1 were down by almost a dollar to $38.61 by 12:10 GMT, whilst U.S. crude oil futures CLc1 were 83 cents down at $36.35.
This will be challenging news for the likes of Royal Dutch Shell, which makes Shell Tonna S3 M 68, and Fuchs Petrolub, as they will be hoping for a steady rise in prices.