Oil prices fall on fears of oversupply

Oil shares came under renewed pressure yesterday after oil prices hit their lowest level for more than two years. The drop was prompted by fears of an oil glut after Iraq said it would start exporting immediately.

But traders are also worried that increased production from Opec and reduced demand as a result of the Asian crisis will keep oil prices low for the next few years.

Iraq suspended oil exports a month ago in protest at the slow distribution of the food and medicines it gets in return for its oil. Under a deal brokered by the UN, however, the country will now resume exports, which allow it to sell $2bn worth of oil every six months, boosting world production by 1 per cent.

Meanwhile, analysts are waiting to see whether Opec members, led by Saudi Arabia, will take advantage of the increased quotas they negotiated in November to boost oil production.

Combined with the lingering effects of the Asian crisis, which has undermined expected demand growth, and the build-up of stocks due to warm weather around the world, this could lead to chronic oversupply.

John Toalster, oil analyst at Societe Generale Strauss Turnbull, expects demand next year to fall to 1.5 million barrels per day, while production could reach 2 million barrels per day.

As a result, he has cut his two-year average oil price forecast to $17 per barrel. That compares with an average price of $19.30 last year and $20.80 in 1996. "This is not just a blip. This is a fundamental sea change," he said.

Other observers remain upbeat, however, pointing out that Saudi Arabia is unlikely to use up its full production quota if it undermines the oil price by doing so.

- Peter Thal Larsen

Suggested Topics
Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Guru Careers: Communications Exec / PR Exec

£25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral