Oil: how low can it go?

Oil slides below $33 a barrel to levels not seen in more than a decade, as a tumble in Chinese equities rattles investors already concerned by near-record production and massive stockpiles of unwanted crude. David Pollard reports.

(REUTERS / BP HANDOUT / SHELL HANDOUT) – It is, says one analyst, the start of a “bear fest”.

A prolonged bout of selling that could see prices tumble to $30 a barrel or below.

By one measure, the OPEC daily basket, it’s already there.

But even the more usual benchmarks, Brent and US Crude, are at levels not seen in over a decade.

The latest factor: China – a giant oil consumer whose stock market downturn has deeply unnerved investors who’d bet on even more consumption in the future.

Spencer Welch is IHS Global Insight Director of Oil Markets.


“If there’s a threat to that potential increase in demand, which is what this China news is, then that may mean that the market stays oversupplied for a longer period of time, keeping prices down.”

How low can they go?

The prospect of Iran coming back on to the oil markets could mean an extra half a million barrels a day as soon as March or April.

And even more pressure on prices.

They’re already down over 70 per cent since the current downturn started 18 months ago.

But even so, a prediction by Goldman Sachs that oil could slide to 20 dollars met with some scepticism.

Not – quite – so much now though.

IHS Global Insight Director of Oil Markets Team, Spencer Welch,

“It could hit that level, but we don’t expect that to be sustained because the impact on production would become significant very quickly. So whereas it wouldn’t be just a case of people stopping drilling for oil in North America, it would mean that people who are currently producing would turn off some of that production.”

IHS sees prices returning to near 40 dollars this year, if demand picks up.

In the longer term, even more price pressures could emerge – as a US decision to revive its oil exports after a 40-year ban add even more supplies to an already historic glut.