Monday December 1st 2014
Billions of pounds were wiped from the value of Britain’s top energy firms on Saturday as they braced themselves for further falls in the price of oil as well as massive spending cuts across the oil industry.
US crude suffered a 6% drop (to below $69 a barrel), while Brent was steady at a four-year low of around $72.75 following the decision by the Organisation of Petroleum Exporting Countries (Opec) to leave production unchanged at 30 million barrels per day.
Analysts have suggested that globalcapital spending could be reduced by £60billion.
Colin Smith, Panmure Gordon oil analyst, said: “We see little reason why Brent should not revisit the 2008 lows of under $40 a barrel over the next few weeks and months in the absence of a more proactive stance from Opec.
“We believe Opec is likely making a serious misjudgment of just how low the oil price can fall. We do not believe it will be able to maintain its current position.”
A continuous drop in the price of oil will test the finances of oil producers as the cost of developing new reserves increases, hindering their ability to replace output as existing fields dwindle.
Broker Credit Suisse commented: “There can be little doubt that lower oil prices would lead to budget cuts and lower upstream capital investments by oil and gas companies.”
However, senior economist at Oxford Economics, Adam Slater, argues: “Further oil price declines could provide a significant boost to consumer spending, perhaps providing a missing link in the global recovery.”