Oil prices continued their rout on Tuesday with Brent crude and U.S. WTI both falling to their lowest in almost six years as a big OPEC producer stood by the group’s decision not to cut output to tackle a glut in the market.
Oil prices have fallen 60 percent from their 2014 peaks hit in June in a rout that has seen a collapse of more than 36 percent in the past seven weeks.
February Brent crude fell almost 5 percent to a low of $45.23 a barrel by 0730 GMT, the lowest since March 2009. U.S. crude for February was trading at $44.44 a barrel, its weakest since April 2009.
The price fall is a result of rising output, especially of U.S. shale oil. At the same time, producers from the Organization of the Petroleum Exporting Countries (OPEC) have not cut output, instead offering discounts to customers in an attempt to defend market share.
The United Arab Emirates’ oil minister, Suhail bin Mohammed al-Mazroui, said on Tuesday that OPEC’s decision in November not to cut output had been right. He also said that U.S. shale oil was an important part of global oil supplies.
“Shale oil producers are very important for the market supply and we all need them to stay,” he said, adding that the market would stabilize at a level at which conventional producers can sell profitably, “whether $60 or $70 or $80″.
Adding to the glut are slowing Asian economies, which now face deflationary pressures.
“Even without the full effect of the recent collapse in energy prices, GDP deflator in the region (Asia) … is estimated to have slipped. We believe that weaker aggregate demand is at the heart of this generalized deflationary pressure,” U.S. bank Morgan Stanley said on Tuesday.
The downward pressure on prices is so big that even record Chinese crude imports for December – above 7 million barrels a day for the first time as the world’s No.2 oil consumer took advantage of low prices to build up reserves – could not lift the market for long.
Meanwhile, banks have slashed their oil price outlook, with analysts at Goldman Sachs cutting their average forecast for Brent in 2015 to $50.40 a barrel from $83.75.